- Tax return errors could result in a delayed refund or rejected return.
- Be sure to report all your income, including that side gig.
- Give yourself plenty of time before the deadline to go through your receipts and to file.
Don't fall victim to these blunders.
Now that tax season is in full swing, you may be getting ready to tackle your 2021 return. But it's important to go through the motions carefully and methodically. It's also important to steer clear of these dangerous mistakes.
1. Not reporting all of your income
In today's gig economy, side hustles are very common. But it's on you to report your side hustle income to the IRS. And if you don't, you could face penalties for failing to come clean.
If you worked on a freelance basis for a client who paid you $600 or more in 2021, that client is supposed to send you a 1099 form summarizing those earnings. The IRS also gets copies of 1099s, and if it sees a payment you don't acknowledge, it could raise a red flag. As such, be sure to go through your earnings and report all freelance payments you received -- even if you don't have a 1099 form to accompany them.
That said, it's not just freelance income you have to report. If you earned interest in your savings account or sold investments at a profit in your brokerage account, the IRS needs to know about that as well. Look through your records to make sure you're not accidentally omitting key information.
2. Guessing at deductions
If you're self-employed, you can deduct business expenses on your taxes. But don't just guess at those deductions. If you underestimate them, you could end up with a larger tax bill or smaller refund. And if you get them wrong, you could run into trouble if your tax return is audited.
Tedious as it may be, take time to comb through your receipts and credit card statements before listing your deductions on your tax return. Getting that information right could spare you a world of trouble later on.
3. Waiting until the last minute to file
Taxes are due this year on April 18. But that doesn't mean you should wait until the 17th to get started. You may come to realize that you're missing key information you need to file your return, so the sooner you get the process started, the less stressed you'll be in that scenario.
Waiting until the last minute to do your taxes could also mean having to rush through the process. And doing so could increase your chances of making a mistake that gets your return rejected or audited.
4. Not getting help
If your taxes are fairly simple, then you may be able to file them yourself, either for free or by paying a modest fee for a tax software program. But if your tax situation is more complex, then it could pay to hire a professional. Not only might that reduce your chances of making an error, but it could also help you eke out more tax savings.
It could be a good idea to consider hiring a tax preparer if you:
- Were self-employed or did a lot of freelance work in 2021
- Own your own business
- Have a lot of different investments you sold last year that gained or lost value
The last thing you want to do is botch your upcoming tax return. Keep these points in mind to make the process run smoothly.
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