Owing taxes to the IRS is bad enough, but getting penalized on top of that could add up to serious financial trouble. Careless mistakes when doing your tax returns may make you end up paying more to the IRS. The IRS uses penalties to change a taxpayer’s behavior, and as a result, some penalties may cost you more than others. However, these mistakes are avoidable through strict adherence to the tax rules and awareness, including keeping deadlines for making your tax payments.
Here are the common mistakes you can make to penalize yourself and how to avoid them.
1. Filing your taxes late
Mark this date or set it as a reminder – April 15, 2021 – the deadline for filing your taxes for 2020. No one likes to file their tax return, but it’s a must, and if you feel you won’t make it to the deadline, you can request a tax extension. IRS knows about your existence because they have all the 1099s and W-2s you receive in the mail, which means they know how much money you’re making every year.
Filing your taxes late can add 25% to your tax bill, and also, not signing the tax return. Forgetting to sign your tax return is the most common mistake taxpayers make. The IRS won’t accept an unsigned tax return, and it’s considered the same as not filing at all.
2. You’re not accurate with your mileage.
If you’re self-employed and want to deduct all the wear and tear you put in your car this year while getting the job done, it must adhere to the new rules. It’s essential to be accurate in your bookkeeping to avoid any penalties. If your bookkeeping sets off any red flags to the IRS, they will ask you to provide a journal detailing every mile claimed on your tax return.
You may also be asked to show all the receipts for any other questions they may have on your entire tax return. If you can’t prove your claims, there’s a 25% accuracy penalty placed on top of the additional tax and the entire amount’s interest.
3. Mathematical errors on your return
If you’re not so good at calculations, then you better sharpen your skills when doing your tax return. Calculation errors are a common mistake when done on pen and paper tax returns, so ensure that you check and recheck your calculations.
If the errors result in you paying less to the IRS, they will require you to pay the additional amount in taxes owed, plus the interest accrued since the return date. The good news is at Taxfyle, they will handle all your math, and their calculations are 100% accurate.
4. Home office deduction penalties
If you use any part of your home as an office, you may confidently take a deduction for your home office. The vital factor is to ensure that you use your office regularly and exclusively as your principal place of business.
If the IRS determines that you don’t qualify for the home office deductions, they will raise your taxable income. If the reduction in expenses leads to more income, then that amount is subject to self-employment tax.