Now that tax season is in full swing, many taxpayers are working through their documents, trying to organize everything for their 2014 tax return. As you get ready to file your own tax return, here are 4 tax time mistakes to avoid:
1. Waiting Until the Last Minute
One of the worst things you can do at tax time is to wait until the last minute to prepare your tax return and file. It’s true that you have until April 15, but waiting until two weeks before to start working on your documentation is a bad idea. Instead, you should make it a point to get started early.
The longer you wait, the more rushed you are. It’s much easier to make other mistakes when you are in a hurry and unsure of what you are doing. If you use an accountant, waiting until the last minute can be problematic since it can lead to forgetting to take something into your tax professional. Plus, if you haven’t made an appointment, you might not even get in to see your accountant, since he or she might be booked up.
2. Forgetting About Online and Mobile Charitable Contributions
The Internet makes it easier than ever to give to causes. Giving to the Red Cross and other charities is as easy as sending a text or clicking on a “donate” button. Once you’ve made your contribution, though, it’s very possible that you will forget that you have made it. You might receive an email confirmation of your donation, and delete it, or just archive it and forget it.
You’ll need that receipt if you itemize and you want to take the tax deduction. Do yourself a favor and double-check your email. Create a separate folder in your email box to save emails thanking you for your donations so that you can keep track of them in the future.
3. Not Considering Your Education Tax Breaks
If you or a dependent is in college, you need to understand the pros and cons of different education tax breaks. You can either deduct up to $4,000 in tuition and fees, or you can take a tax credit for up to $2,500 under the American Opportunity Tax Credit. There are different eligibility requirements, but the real mistake is when taxpayers assume that they should go with the deduction because the $4,000 looks attractive. However, in some cases, the tax credit is a better choice.
The difference between a deduction and a credit is an important distinction since the credit is a dollar-for-dollar reduction in what you owe. It’s like having a gift card to apply to your tax bill. The deduction, on the other hand, just reduces your income, so it usually isn’t as valuable. Re-evaluate your strategy to determine what course of action really is best for you.
4. Forgetting to Double-Check Other Deduction Opportunities
Finally, don’t forget to check other deduction opportunities. Can you take the new, simplified version of the home office tax deduction? Do you still have room to contribute to your Traditional IRA or HSA for the previous year? Go through your receipts and your finances, and identify deductions that you might have missed. You don’t want to leave money on the table.