Every time tax season nears, people look for means to outsmart the system. For some, this will involve visiting a renowned storefront so as to meet a professional with all the technical know-how on filing returns and getting you the largest possible refund. For others, this will involve taking time off their busy schedule to file the returns by themselves. The latter option is relatively cheap compared to the former, despite being quite risky especially for those that blindly dive in. A single mistake could end up messing up the entire operation and ultimately costing you more in the form of penalties and interests. Below are some of the most common mistakes people make.
Failing to claim a second property loss for friends and family members
Most people are always afraid of taxing their close acquaintances. This mainly applies to cases where individuals rent out property to their family members or friends. As the owner of the rented out property, it is your sole responsibility to report any form of rental expense. You are most likely incurring a loss from the property. Therefore, reporting such expenses will ease the pain by earning you tax benefits.
Child care credit
This is another area where most people make all sorts of mistakes. If a family member or friend is taking care of your child for a certain fee, make sure to report it. You will be required to provide the Social Security number which in turn means reporting the income earned. The same applies for Dependent Care Credit. Note: the income is reportable, not taxable. In a majority of cases, the friend of family member ends up getting extra income in the form of a huge EIC (Earned Income credit).
Residential Energy Credit
This is another area that most at-home preparers tend to overlook due to the assumption that they do not reach the maximum threshold. With REC, it is all about qualifying. To qualify, you do not need to install expensive solar panels. Items such as small energy efficient window sun screens qualify anyone for such.
Ignoring state specific guidelines
Another popular mistake made is incorrectly filing state specific items. An example is in Arizona where Medical deductions are simply adjustments unlike in other states where they have the highest threshold possible against Federal returns.
In conclusion, to avoid making such mistakes, make sure to properly educate yourself on all the relevant tax laws before engaging in preparation of your tax returns. Another option is to make sure to use the best tax return software. If for example you decide to use TurboTax, ask yourself "which TurboTax should I use". Consider all possible guidelines and features before purchasing specific software.