Most people dread doing their taxes. It involves a lot of paperwork, and the tax system is incredibly confusing. You do not want to miss out on any deductions, but making a mistake could land you in hot water with the IRS.
Even people with the best intentions make mistakes. Here are four common mistakes to avoid when filing your taxes this year.
Do not deduct personal expenses as business expenses
Drawing the line between personal and business expenses is often difficult. Clothing you wear to work is typically not a business expense, unless you wear a uniform or a costume to work.
People who work from home can deduct certain expenses like internet or a cellphone. However, you might only be able to deduct a percentage of these expenses. If you are uncertain how to take a deduction, reach out to a tax preparer or tax attorney. These professionals can walk you through the process and ensure there are no mistakes on your return.
Do not misrepresent your income
Servers or other workers who receive cash may be tempted to underreport their income. However, if the business that paid you in cash reports this income, the IRS could catch on. Likewise, if you spend more than your reported income, this is incredibly suspect. Large cash deposits into a bank account could also alert the IRS.
Do not claim tax credits you are ineligible for
When filling out tax paperwork, you may see tax credits for education, earned income or credits for purchasing energy efficient products. Some credits may earn you a refund. If you do not qualify, you will not have the backup documentation needed for the IRS. Keep yourself out of trouble, and only take tax credits that you qualify for. If you are unsure whether you qualify, do some research or talk to a qualified professional.
Do not forget to take the new tax act into account
The president signed the Tax Cuts and Jobs Act (TCJA) at the end of 2017. The TCJA made a series of changes to individuals taxes and deductions. One change is alimony payments can no longer be deducted. Most business entertainment expenses cannot be deducted, with some exceptions for business meals. Moving expenses are generally no longer allowed as a deduction, except for certain military professionals.
Doing your taxes is confusing, but avoiding these common mistakes can prevent issues with the IRS. Consulting with a tax professional may also provide peace of mind.