Tax is a complicated gray area that the average person isn’t fully equipped to handle, and that’s ok–it’s why LRSCPA is here to help. As 2021 wraps up and we head into filing season, it’s important to stay on top of your finances and avoid a few mistakes that could end up costing you on your tax returns either this upcoming year or down the road.
Not Using Tax-Advantaged Savings Accounts
Basic savings accounts are great for everyday use, but there are a number of tax-advantaged savings accounts that help you accrue wealth throughout your lifetime. The most common examples of these are IRAs, Roth IRAs, and 401(k) accounts, but others such as 529 plans and Coverdell ESAs help you pay for education and education-related expenses, and HSAs play a similar role for healthcare expenses. All of them allow you to enjoy tax-free income or to reduce your taxable income now, and it’s up to you to consult with an experienced CPA like us to determine which account works best for you–your wallet will thank you in the future!
Failing To Make Estimated Tax Payments
Throughout the year, you’re required to make tax payments to the IRS, but these are often in the form of withholdings from your paycheck. If you’re scheduled to owe more than $1000 in taxes in a year, your withholdings must exceed 90% of your estimated tax liability in order to avoid these quarterly tax payments.
If your withholdings aren’t enough, you’ll need to make those quarterly tax payments to avoid costly interest and penalties.
Not Maximizing Tax-Deferrals
The general rule of thumb for avoiding tax penalties is to take deductions as soon as possible and defer income as long as possible. Tax-loss harvesting can help you accelerate your deductible losses, and avoiding sales on winning investments or not withdrawing money from tax-advantaged accounts can help you cut your tax bill. Everyone’s situation is different, which is why it’s important to discuss your finances with a licensed CPA to see exactly where the tax breaks are for you!
Not Taking Advantage of Tax Breaks
Everyday costs that you’ve gotten used to related to your work or education might be small, but they add up quickly. Even the smallest of costs can be tax-deductible–school supplies, gas costs for travel, and even unusual expenses necessary to the operation of your business. Talk to our tax professionals to find out exactly what you can deduct from your 2022 return!
There are dozens of rules and regulations you might not even be aware of that are extremely important to take into consideration come tax season. Let LRSCPA help you with that and more to get the most out of your tax returns!