However, if you’re not meticulous, you could be losing money that’s rightfully yours.
John McCarthy, CPA and president of McCarthy Tax Preparation, which provides tax preparation and bookkeeping services to individuals and small businesses, commonly sees clients make the same mistakes again and again when filing their taxes.
Here are three pitfalls to watch out for — and how to avoid them.
1. Forgetting to change your tax withholdings after major life changes
“A new job, second job, new child, or college expenses can all have a big impact on your refund or balance due at the end of the year,” McCarthy told Business Insider. “I would encourage taxpayers to review their tax situation in the middle of the year to be sure they are withholding enough to avoid an unpleasant surprise at year end.”
Make it a habit to review your taxes after every major life change, from getting a new job to tying the knot to buying a home. It will help you realise ahead of time if you’re not paying enough up front, so you can adjust accordingly. After all, no one wants to owe the government $US1,000 come April.
2. Not looking into the sales tax deduction when itemizing expenses
It’s a smart course of action to itemize if you’ve chalked up more deductible expenses than the standard deduction amount: $US6,350 for singles and $US12,700 for married couples for 2017.
There are seven categories of expenses on the relevant “Schedule A” form for itemizing, including charitable donations and medical expenses, but since you don’t have to fill out all of them in order to itemize, it’s important to know which ones you are eligible for. Many people often overlook the sales tax category, McCarthy says. However, it can be an important one because if you live in a state without income taxes, you have the option to claim a deduction on state sales taxes, as TurboTax explains.
3. Not tracking non-cash entities
Some tax deductions are based on factors that don’t have a strict cash value, so it’s key to stay on top of them as they happen. You don’t want to save figuring out how much furniture you donated to Goodwill or calculating how many miles on your car were for business purposes for the eleventh hour.
Make a point of keeping detailed accounts of all non-cash transactions and contributions throughout the year, so you’re already prepared when tax season rolls around. For donations, McCarthy recommends taking photos of everything and asking for receipts at the time of donation. To track your mileage, he suggests letting an app, such as MileIQ, do the work.
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