Avoid These 5 Tax-Filing Mistakes
Tax time. "It's the most wonderful time of the year," said no one ever.
But, like death, it's unavoidable, so it's wise to make the process if not profitable then at least as painless as possible. To help you sidestep some all-too-common and potentially costly errors, we have asked tax experts to describe some of the common tax mistakes that physicians may make.
Here are the five mistakes you want to avoid:
1. Passing up the chance to be a tax-smart saver
With just weeks or even days to go by the time you put "pencil to paper," the time will have passed for tax savings related to selling stock at a loss to offset your modified adjusted gross income (MAGI) or making charitable donations to increase your itemized deductions for 2018. However—perhaps because he knows it's good for you—Uncle Sam gives you until the last minute of April 15 to contribute up to $5500 (or $6500 if you turned 50 or older last year) to an individual retirement account (IRA) for 2018.
"The ability to reduce your taxable income through contributions to traditional IRAs is a greatly underutilized opportunity," says Ramon Vasquez, senior tax analyst at Block Advisors, a division of the national tax prep firm H&R Block that is geared toward small business owners. These contributions may be deductible from your taxable income if you don't have a qualified retirement plan through your employer (or you do but do not exceed the income limits).
Vasquez says, "I'm a strong proponent of IRAs, both for self-employed and wage-earning taxpayers, but people sometimes overlook them until you do the math and show how much it can save," adding, "If it makes dollars, it makes sense."
2. Overlooking tax-saving opportunities
The ability to deduct certain expenses from your taxable income was altered with the Tax Cuts and Jobs Act that went into effect for the 2018 tax year. A number of deductions that one could itemize, such as unreimbursed employee business expenses, are no longer available. So for many—25 million taxpayers, the Tax Policy Center estimates—the now-doubled standard deduction ($24,000 for married couples filing jointly or $12,000 for single filers) may be preferable.
To even consider itemizing, however, you must be able to provide proof that you incurred the expenses. Keeping good records—with checks, credit card statements, or letters of acknowledgment—is what's important, whether you track them in a spreadsheet, a phone app, or stuff them into a shoe box, according to Vasquez, who has seen it all.
"Get into the habit of saving paperwork, such as bills showing payment of uninsured medical expenses, statements supporting mortgage interest payments, and charitable contributions, where acknowledgment letters are required for donations of $250 or more," he advises. "Once people correlate the practice of keeping records to saving, it encourages this best practice behavior."
Often overlooked by itemizers, Vasquez says, are personal property taxes for vehicle registration (both yours and those of your spouse and dependent children), recreational vehicles, and watercraft.
Also, the standard home office deduction is still available, but only for the self-employed, who can deduct $5 per square feet of home used for business up to maximum of 300 square feet. And if you have student loan debt, remember that interest is an "above the line" item, meaning it's deductible whether you itemize or not.
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Any views expressed above are the author's own and do not necessarily reflect the views of WebMD or Medscape.
Cite this: Marcy Tolkoff. Avoid These 5 Costly Last-Minute Tax-Filing Mistakes - Medscape - Mar 12, 2019.