Tuesday, December 11, 2012

How to Prevent Making Common Costly Tax Mistakes

Image credit- Arvind Balaraman
Do you find filing taxes as annoying as I do?

Most people don't enjoy paying taxes. Grudgingly, each year, they file taxes, wishing they'd be able to keep their money for themselves instead of sending it over to the government. And as much as people don't like to give their money to the government, most people make mistakes, and often repeatedly, that ends up costing them a lot financially.
Here's some common costly mistakes people make when filing taxes; hopefully, with this knowledge you can avoid making the same mistakes, and make sure you're not paying more money than necessary to the government.

The biggest mistake that people usually make is overpaying their taxes. When you have taxes deducted from your paycheck every month, make sure that you aren't paying more taxes each month than you need to be paying. While getting a large refund check at the end of the year is nice, most of the time, that money isn't free money that the government is giving you- its your money, that you lent to the government, interest free, for all those months, because you overpaid your taxes.
Why do that? Why put more strain on yourself financially each month because you decided to loan the government money free of charge? This greater financial strain because of overpaid taxes can easily cause you more expenses, like the interest you pay on credit card debt, if you find that you turn to credit cards to survive during tougher months. Instead of struggling more than necessary, keep the money you deserve instead of giving an non required an interest free loan to the government via your taxes.
If you're an employee, make sure to include all relevant deductions on your W4 form so that you aren't having more taxes withheld from your paycheck than necessary. If you're self employed, also make sure you don't pay more than necessary for taxes.

Filing late is another costly mistake that people pay when filing taxes. Did you know that the IRS charges you 3% interest on your unpaid taxes, plus a penalty fee for late filing (up to 25% total of the amount owed!). There's no need to pay all this extra money! If you really are running behind, you can get an automatic six month extension by filling out form 4868 on IRS.gov.
If you're out of a job, because of the Fresh Start program, “if you’ve been unemployed for 30 days or more, whether in 2011 or 2012, you can have until October 15th to pay your taxes in full and they won’t assess the failure to pay penalty,” according to Kathy Pickering of &R Block Tax Institute.
Don't pay late fees- apply for extensions!

Do you apply all deductions that you are eligible for? If not, you may be paying more money in taxes than necessary. Are you including mortgage interest, medical expenses, charitable donations, work related expenses? If you don't live in the US and your children are eligible for American citizenship, did you get them their social security numbers so you can count them as a dependent when filing? Are you up to date on all the latest changes in tax codes, like deductions for first time home owners who bought between specific dates, or for people who were affected by a natural disaster? Make sure that you apply all the relevant deductions so you don't pay more than you need to.

Another thing people do regarding their taxes that can have costly consequences is getting their tax refund via a check in the mail. Checks can get lost in the mail, or stolen, not to mention taking a long time to arrive. An alternative to this is to have the IRS load your tax refund onto your Visa Prepaid card, which allows you to get your refund immediately, and is fully covered in case of theft or loss of the card.
  Visa Prepaid has launched a “Know Your Numbers” game on Facebook , which helps you learn the numbers of your Visa Prepaid credit card, while also giving you the chance to earn prizes, including free Visa Prepaid gift cards and tablets.

I am blogging on behalf of Visa Prepaid and received compensation for my time from Visa for sharing my views in this post, but the views expressed here are solely mine, not Visa’s. Discover more at http://www.VisaPrepaid.com or join the Visa Prepaid community at http://www.facebook.com/VisaPrepaid.

Do you get a tax refund every year? What size does it usually end up being? If you're getting a large tax refund, are you getting such a large refund because you overpay on your taxes each year? What method do you usually use for getting your tax refund?
What were the costliest mistakes you've made when filing taxes?

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