By Johnny DeBiase, CFA
April 15th is just around the corner, and many of us are knee-deep in tax planning. When inundated with massive quantities of receipts, financial statements, forms, and spreadsheets, it can be all too easy to make errors that can lead to inaccurate calculations, delayed refunds, and penalties in worst-case scenarios.
Fortunately, many of these errors are easy to avoid or correct. To assist in the ultimate goal of pursuing your ideal financial future, here are some of the most common tax-planning mistakes and how to prevent them.
Missing Deadlines
Although April 15th happens every year (we checked), the deadline for filing taxes has a way of sneaking up on many people.
While it’s perfectly acceptable to file for an extension, one way or another, you need to give the IRS something by April 15th. Failing to give any notice whatsoever can result in a penalty of 5% of unpaid, owed taxes per month. Interest charges and other penalties may follow.
If you need to extend the April 15th deadline, you can submit Form 4868 to the IRS before that date, or simply make an electronic extension payment online (no need to file Form 4868). If you expect to owe taxes after filing, it’s a good idea to estimate how much you’ll owe and make at least a partial payment when requesting an extension.
Overlooking Credits, Breaks, and Deductions
Tax planning is a tough task. In trying to streamline the process, many taxpayers only count standard annual deductions and move on. In doing so, they miss out on tax credits and deductions they could have taken advantage of.
Credits are available for taxpayers in certain situations—those with children, those saving for retirement, those financing education, those supporting green initiatives, and more. Take the extra step of learning what tax advantages are available to you.
Providing Inaccurate Information
Whether you use automated software or an old-fashioned calculator, it’s a good idea to double-check your work to verify it’s accurate. This advice goes beyond mathematical errors; it also applies to changes to your personal info or bank account numbers and other common typos.
It’s important to be careful and accurate when calculating your finances. Rounding up deductions might be seen as incorrect by the IRS, and could potentially lead to an audit—which most people prefer to avoid!
Not Reporting All Income Sources (and Losses)
The days of having a single 9-to-5 job that accounts for all of a household’s income are gone. Realistically, they were never really there—investment dividends, retirement fund distributions, Social Security benefits, stock sales, and other miscellaneous revenue streams have always been reportable income sources.
However, with today’s gig economy and increasing diversity of income opportunities, it’s important not to skip over any financial gains—or, if applicable, capital losses. In addition, many financial institutions are foregoing mailing tax documents, opting instead to post them electronically. Just because you didn’t receive a tax form in the mail does not mean you don’t have taxable income that needs to be reported.
Missing Quarterly Estimated Tax Payments
For most of us, tax planning is only an annual chore centered around the April 15th deadline. But many self-employed or freelance workers, as well as those earning income from investments, may be required to file taxes four times a year. That’s because they’re in charge of their own paycheck deductions since they don’t have a regular employer to make them automatically.
If this situation applies to you, the IRS requests that you fill out and submit Form 1040-ES every quarter. It might be an additional hassle, but it could also instill a sense of discipline about tax planning. It may even optimize cash flow and put a cap on interest charges.
Not Getting Tax-Planning Help
If you find yourself underwater with tax planning, the best thing you can do is ask for help. Don’t hesitate to contact Gould Asset Management, a financial advising firm serving clients in Claremont, CA, and beyond. If you need a referral to a tax planning expert, we work with some of the best tax planners in the industry who understand the personal approach we take to every interaction and, like us, desire to help people turn their hard work into a prosperous future.
To schedule a meeting, call (909) 445-1291, email contact@gouldasset.com, or request a meeting on our website.
About Johnny
Johnny DeBiase is Partner and Senior Portfolio Manager at Gould Asset Management, an independent registered investment advisor based in Claremont, California. The firm manages customized portfolios on behalf of individuals, families, and nonprofits, and offers a range of services, including retirement planning, charitable giving strategies, and values-based investment options. As fiduciaries, they always put their clients’ interests first while providing best-in-class financial advice.
With responsibilities including portfolio management, market and investment research, and client relationship management, Johnny enjoys how investing combines numbers and finance with an element of human psychology. A big part of his job involves breaking down complex and emotionally charged topics like death and divorce, helping clients tune out the noise and see the big picture. He’s a firm believer that clients don’t stay for investments, they stay for client service.
Prior to joining the Gould team in 2012, Johnny interned for Fidelity National Information Services in their corporate tax department, analyzing data and assisting in the preparation of tax returns. He obtained his bachelor’s degree in economics with a minor in chemistry from the University of North Florida and his master’s degree in finance from the Robert Day School of Economics and Finance at Claremont McKenna College. He also holds the Chartered Financial Analyst® (CFA) designation and is a member of the CFA Institute. In his free time, he enjoys hiking with his wife, Jill, playing with his dogs, Millie and Lola, cooking, yoga, and reading fantasy and sci-fi books. To learn more about Johnny, connect with him on LinkedIn.