When it comes to tax time, there are many ways the situation could (go downhill). With some planning and knowledge, you can take your bookkeeping principles to another plateau (avoiding these common pitfalls) and ensure that your business is in compliance and above reproach. Whether you are a person taxpayer or a small business owner, knowing the common mistakes and how to stay away from them can spare you time and cash. Finance Zoom provides the following list of 10 Top Tax Planning Mistakes and Strategies to Avoid Them.

Ignoring Estimated Tax Payments

One of the most common mistakes is not paying estimated tax payments. The only way to avoid this is if you are self-employed or you earn a large amount of non-wage income then the IRS expects you to pay taxes quarterly. Truth be told if you do not make these payments on time, those penalties and interest charges are no joke. To prevent this, save part of your income for taxes and input the can-be-due tax payment dates within your calendar.

Misunderstanding Deductions and Credits

Taxpayers often forget or misapply deductions and credits. Deductions work by lowering your taxable income, while credits lower your tax bill. Improper implementation of these could land you an audit or worse, a missed savings. If this does not happen for you, keep careful records of expenses and seek help from a tax accountant to ensure the highest possible deductions and credits.

Failing to Keep Accurate Records

Good records are a key to engaging in smart tax planning. One common mistake is the failure to retain receipts, invoices, and other financial records. If you do not have these records, it may not be possible to deduct any expenses, and may also find yourself in a world of trouble if the CRA comes knocking. Keep digital copies of your records: Use financial software to keep copies of all your paperwork organized throughout the year.

Not Reviewing Tax Errors

For instance, small tax errors like wrong Social Security Numbers or misspelled names can hold up your refund and potentially put you on the IRS's radar. Recommended: Review tax return information before submitting it. Better yet, use tax software that checks for errors. Even better, doing it through the tax software that is programmed to verify the mistakes automatically.

Overlooking Retirement Contributions

Regular payments to your retirement plan (such as an IRA or 401(k)) are not only a helpful way to ensure future financial security, but can also save you some cash by reducing the amount of your income that is taxable. However, plenty of taxpayers remain on the sidelines. If you continue to invest in these accounts and seek advice from a financial consultant, use every retirement plan tax advantage available to work.

Missing Out on Tax Loss Harvesting

If you have holdings that you would like to sell eventually or reduce your exposure, a good way to do it is through tax loss harvesting and selling positions at a loss so as to shelter potential capital gains. This is a strategy that many investors miss the boat on. Consult a financial adviser to pick up tax loss gains on your liberal list.

Neglecting State Tax Obligations - Compliance Tips

While people perhaps more easily think of federal tax compliance, state tax matters are no less important. State income tax... can be an after-the-fact liability that people simply forget about. Check-in with a tax professional who knows what they are talking about or read up on your state's tax requirements.

Ignoring Tax Implications of Life Changes

Your marriage, divorce, or birth of a child could affect your taxes in a big way. Failing to adjust your tax planning for these changes can lead to mistakes. Change your withholdings and assess how tax credits and deductions will apply in your new state These credits and deductions may then not apply to your new situation.

Procrastinating on Tax Filing

Procrastination often means errors and missed cut-off dates. If you rush through your tax preparation, chances are high that you might make errors which would eventually lead to penalization. File early, collect all your documentation, and allow sufficient time to review your return.

Relying Solely on Tax Software

While tax software helps a ton, it is not your only friend. There are certain circumstances where the expertise of a professional should be used; automated software may not fulfill professional judgment. Have a tax specialist file your return, especially if you have a financial situation more complicated than the average American.

When it comes to tax planning mistakes they can very easily add up, but they are also just as easy to prevent. Keeping records, knowing the rules of taxes, and calling in a pro when you need it will help prevent common mistakes. FinanceZoom- Finance Zoom is here to help you navigate the challenges associated with tax planning and also ensure that you remain in compliance with tips and maximize your financial welfare.

Reference

IRS

https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes