Tax time is fast approaching and it will only be a matter of weeks until many are searching through files to collect receipts and gather all the information needed to file their 2015 taxes. Even if your situation is relatively simple, one thing is for sure, taxes are never simple. It seems like they get a little more complicated each year and there are always new rules and new penalties you should be aware of to ensure you do not end up with a big tax bill.
It is important to take your time and review each detail of your situation as the IRS can impose large fees for making simple or careless mistakes. Knowing the deadlines and all the required forms that need to be filed is just the beginning of properly filing your taxes. There is what seems like an endless amount of penalties that apply to taxpayers if they do not properly disclose certain information or make the correct calculations.
Believe it or not, one of the most common errors that people make is not singing their return. If you fail to sign your return then the IRS will reject it. Unfortunately, according to the IRS rules, this is the same as not filing a tax return at all which means by the time you receive notification and file your return with a signature again, you might be late. So to begin with, make sure you sign your tax return and it is best to submit your return a few weeks early just in case you happen to make a simple error that needs to be corrected.
Additionally, there are several penalties that you want to be aware of and make sure you avoid if in fact they apply to your situation.
April 15th should be marked on your calendar as a day to remember because your tax return must be postmarked by this date in order to be considered on time. While nobody likes filing taxes, do not let yourself get so tense about the issue that you fail to do so, that will only make things more difficult to deal with. Depending on your situation, not filing or filing late may add as much as 25% to the amount of taxes you owe. A tax bill can be a significant amount on its own; you certainly do not want to start adding additional late fees and penalties that will make the amount even more.
There are new rules that apply to taking deductions for the mileage you put on your vehicle throughout the year. This is especially important for self-employed individuals as sometimes their tax returns are scrutinized a bit more than others. First, it is important to ensure you are very accurate in how you calculate the mileage you are deducting and you keep very clear records that support your figures.
If your figures and return are questioned by the IRS, you will be required to provide supporting documentation that proves every mile claimed on your return. You are also expected to keep a mileage log that details your starting mileage, where you went and what your ending mileage was when you returned. If you fail to prove your figures are accurate then you can be charged as much as a 25% penalty for your figures being inaccurate. In addition, that 25% penalty is added to any tax and interest on the entire amount owed.
If math has never been easy for you then you will want to take extra caution when doing your taxes. The IRS does not overlook errors in your calculations and it can sometimes result in a very ugly outcome. If the error made it look like you owed less in taxes than was actually due, then the IRS is very likely to require that you pay interest on the amount that you did not pay on time. The interest will begin accruing on the due date of the return and will be added to the amount owed each day.
This makes using an automated service a “no brainer” for most people as it alleviates the worry of making an error in your calculations and having to follow the complicated string of required math page after page.
If you run a legitimate business out of your home then you are allowed to take a deduction for a home office as long as it meets the strict guidelines. There is important language in the guidelines though and you should be sure it applies before taking the deduction. Taking a deduction for a home office requires that use of the home office space is “exclusively and regularly” used as the principal place of business. This means if you also use the room for purposes other than business then you may not deduct the entire space as an office. You can only deduct the exact portion of space that is “exclusively” used for business purposes.
If you claim a home office deduction and the IRS determines you were not eligible for the deduction, penalties can be severe. If you are self-employed not only will you owe additional taxes due to your amount of income being higher but you will also owe additional self-employment tax, which is calculated at 15.3%. This can obviously result in a large bill that nobody would be happy about. If you plan to use the home office deduction, the word of the day is caution.
When taking deductions for charitable donations you have to be careful and ensure you have proper documentation, especially for contributions that are considered non-cash. It is your responsibility to get a slip from the organization you contributed the clothing or furniture to which itemizes the items donated and the condition of those items. Additionally, an authorized individual from the organization should sign the slip and enter an estimated amount of value.
If any of the above elements are not present on the receipt or slip you receive then it will not be accepted in an audit situation. Like many of the penalties mentioned above, if it is determined your charitable deduction is not allowed then you can be assessed the 25% inaccuracy penalty as well as any interest on the amount of taxed owed. Keep in mind the interest will be backdated to the original date the tax was due, in most cases April 15.
There are many penalties that taxpayers need to be aware of and avoid. The penalties mentioned above are just a few of the most common issues taxpayers have. Of course, the Affordable Healthcare Act has its own set of penalties and pitfalls that you must navigate in order to avoid a big bill at the end of the year. In fact, there are so many important details involved with the Affordable Healthcare Act that we have a page dedicated to that issue alone, which you can see here.
Taxes are never easy and mistakes can be costly, which is why most use an automated system to help them through the process to ensure accuracy and make sure they have covered each section of their tax situation that is required. Not only that, but an automated system can also help you uncover deductions that perhaps you were not aware of. While the IRS does have many penalties and fees included in their rules they also have many deductions and ways to legitimately save on your tax bill. If you need affordable and efficient help to lower your tax bill and ensure accuracy then you can access our automated tax filing system here.