As my business card states, I am a fee-only financial planner. An independent financial advisor is very different from an accountant, so this posting should not be construed as tax advice. However, in my efforts to help my clients with their financial planning, I frequently speak to accountants and attorneys. Based on my experience there are many mistakes people make when tax season comes around, and I wanted to draw your attention to those that are most common. (Special credit should be given to my fee-only financial planning associate, John Kvale, Certified Financial Planner.)
- Missing extension deadline - Do not forget to file an extension if you are not able to make the filing deadline. Extensions are easy but very costly should you forget.
- Not recording basis - Under current tax law you most likely have a basis on every item you own. Be sure to include it on your reporting records, otherwise the IRS will assume it has a zero basis, subjecting the assets complete value to capital gains tax.
- Not filing when needing to - When someone becomes deceased it is a good idea to file a final return to notify the IRS. Additionally, even if your income falls under the limits for filing, often times it is necessary to file a return if there were investment or expense events during the tax year.
- Not keeping medical records - Medical deductions are frequently not deductible due to the limitations of inclusion. However, occasionally medical expenses drift over the inclusion areas, and tax laws change frequently; it is a good practice to keep all medical records.
- Rounding deductions - Be exact on all items because rounding deductions is a sure way to raise a red flag. The IRS wants and expects exact numbers.
Coming soon, we will complete the list and also offer a few tips and resources to help in this year’s federal filing requirements.