As an independent contractor or sole proprietor, you need to manage everything tax-related. With this comes great responsibility, and it’s easy to overlook a step or forget a part of the process. Simple mistakes can really add up as penalties from the IRS. With the right knowledge and preparation, you can set yourself up for a successful tax filing. Let’s look at some of the best tips to avoid common tax mistakes.
Before sitting down to fill out your tax return, gathering all the documents you’ll need is important. This includes receipts, invoices, 1099 tax forms and investment statements. Without having all of your necessary documents, you might overpay or underpay.
Tax credits and deductions are a great way to save on taxes. But it’s really easy to miss out on these or make a mathematical error. Bust out your self-employment tax deductions calculator to ensure you’ve calculated your deductions properly or you’ll likely get slapped with a fine.
With FlyFin, you’ll never have to worry about missing a tax deduction or credit. A.I. scans all your expenses for every possible tax deduction. You can deduct items like Netflix, home office and even an exotic vacation. CPAs can help you determine if you’re eligible for a tax credit, like the child tax credit, education credit or the electric vehicle credit.
This might seem like common sense, but you’d be surprised at how easy it is to submit your tax return without giving it a proper look-through. Whether you’re using tax software, an accountant or doing it yourself, it’s best to look over your return no matter how you file your taxes.
Double-check that your name, address and Social Security number are correct and pay close attention to your numbers for adjusted gross income, charitable contributions and write-offs.
The IRS takes math errors very seriously. Miscalculating your taxes will cost you a penalty. Tax tools and calculators are a great way to make sure your calculations are correct. For 1099 taxes, use a 1099 tax calculator; for self-employment taxes, use a self-employed tax calculator; and for quarterly taxes, use an estimated tax calculator.
This may sound silly, but you’d be surprised how many people forget to sign their tax returns. If a tax return is submitted and a signature is missing, the IRS considers this an invalid return. You’ll need to sign it and submit it. One thing to keep in mind is that if you’re filing a joint tax return, both spouses must sign the return.
There are five different IRS tax filing statuses and choosing the right one is key to having an accurate return.
The IRS filing statuses are as follows:
Picking the wrong filing status means you could be paying more taxes than you needed.
There’s nothing like receiving a refund from the IRS. But what happens if you don’t indicate how you want your refund delivered? The IRS will most likely send you a check in the mail. But there’s a chance it could not be delivered or could go unclaimed. Make sure you indicate whether you want to receive it via direct deposit or as a check in the mail.
We like to hope that once you send off your tax return, that it’s actually submitted but it’s best to confirm that your return was actually submitted and accepted. If not, the IRS would treat this as if you never submitted your return. You can check this directly on the IRS website or ask your tax advisor.
As you can imagine, there are a lot of ways to receive an IRS tax penalty. We won’t get into all the technical tax penalties, but some of the more common ones are related to not paying, paying the wrong amount or not filing on time.
In certain circumstances, the IRS will waive the penalty. But you’ll need to convince them with a valid reason. If you do find yourself faced with a tax penalty, it’s not the end of the world. The sooner you pay it, the better since you’ll start accruing interest on the amount. A tax penalty calculator can help you know exactly how much you’ll owe.
FlyFin CPA Team
With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.