E-filing can be quicker and easier than paper filing, but that doesn’t mean you should breeze through it without checking for errors. While e-filing can catch some errors, it’s still important to review your return before your submit it. It doesn’t matter if you’re using a pen or your keyboard when you prepare your taxes; the tiniest slip-ups can mean paying more than you need to or getting a smaller refund than you should. That’s why you should keep an eye out for these common mistakes.
There are several places on your tax return where a tiny typo can be a big deal. That especially goes for filling out names, ages and social security numbers. A mistake in those sections can slow down tax return processing for the IRS. If you do mess up while typing and submit your return, there’s still time to amend your error. Check out the IRS.gov page for instructions on amending e-filed tax returns.
As you prepare your taxes, keep in mind that there are many possible tax deductions that may apply to you. In fact, there are so many options that some deductibles are a bit more specific, while others are just plain bizarre.
This time of year, when snow is piled on the ground and temperatures plunge below freezing, traveling to a warmer climate sounds pretty appealing. If you escape to a tropical island for a meeting relating to your business, you may be able to deduct the expenses. The IRS lists several locations where this applies, including Aruba, Bermuda, Jamaica and the Dominican Republic. Of course, you must be able to prove why it was reasonable to hold the meeting there. If you’d rather be on the ocean than lying on a beach near it, there are also deductions related to attending conventions, seminars and other similar meetings on a cruise ship.
Lady Gaga’s meat dress at the 2010 MTV Video Music Awards was more than a spectacle; it was also tax deductible. According to the IRS, “musicians and entertainers can deduct the cost of theatrical clothing and accessories that are not suitable for everyday wear”.
Unless Madonna can pull off going to the grocery store in something she wore on stage, chances are she got a tax deduction for her get-up.
The 2004 American Jobs Creation Bill affected an unlikely item: fishing-tackle boxes. Before the bill was enacted, manufacturers had to pay a 10% excise tax on their boxes. But Rep. Jerry Weller (R-Ill.) added a provision that eliminated the tax. According to his spokesman, “the problem is that companies are now marketing sewing kits or jewelry boxes [as fishing tackle boxes]…but they’re not subject to the excise tax”.
Source: LA Times
The 2004 American Jobs Creation Act also helped Alaskan whaling captains save a boat-load of money. In a provision by former Senator Ted Stevens, whalers can take a $10,000 deduction for money spent on whaling expenses.
If you pump iron for a living, then you can save a bundle on body oil. In 2004, the Tax Court ruled that a professional bodybuilder could deduct the cost of body oil as a business expense because he used it to make his muscles shine during competitions. However, the court didn’t allow deductions for the bodybuilder’s daily supplements (which included buffalo meat and vitamin and energy shakes).
Source: US Tax Court
An exotic dancer wanted to write off her breast implants as a business expense. She claimed she got the surgical implants to make her a size 56-FF and therefore receive more tips. Though the IRS initially challenged the deduction, but a Tax Court judge later ruled that the surgery did help increase her income and that the breasts (which weighed 10 pounds each) were so bulky she couldn’t derive personal benefit from them.
Source: LA Times
A man arrested for drunk driving was able to deduct the cost of repairing damage to his car. Apparently, he knew ahead of time that he would be drinking and arranged for a ride home. But after drinking, he thought he was okay to drive and his car ended up sliding off the road. The Tax Court let him deduct the cost of the damage as casualty loss because he had tried to act reasonably by arranging a ride. The judge also pointed out that his blood alcohol was at 0.09%, just over the state’s limit of 0.08%.
Source: US Tax Court
Speaking of drinking and driving, in the 1970’s the owner of a service station had a promotion offering free beer to customers. The Tax Court ruled that the giveaway counted as “advertising and promotion” and allowed the owner to write it off as a business expense.
9. Cat Food
How did two junkyard owners manage to pass off cat food as a business expense? They argued that it was a business expense because they used the food to attract feral cats. The cats, in turn kept away rats and snakes from the property and made it more appealing to customers.
Source: US Tax Court
Wish yardwork could be deducted from your taxes? Well if you have a home office, you might be able to do just that. A man worked from home, and often met with clients at his house. He said that’s why it was important that he kept his yard and home presentable. A judge eventually ruled that he could deduct the cost of landscaping and for repairs made to his driveway.
Source: US Tax Court
April will be here sooner than you think, which means it’s time to focus on tax planning. But first, it’s essential to know what tax planning is and how to do it efficiently.
Investopedia defines tax planning as:
“Logical analysis of a financial situation or plan from a tax perspective, to align financial goals with tax efficiency planning. The purpose of tax planning is to discover how to accomplish all of the other elements of a financial plan in the most tax-efficient manner possible. Tax planning thus allows the other elements of a financial plan to interact more effectively by minimizing tax liability.”
So what does that mean? Basically, tax planning is organizing your financial affairs in order to reduce your taxes as much as possible.
Of course, everyone’s finances are different, and therefore their tax preparation will require different forms and information. The IRS has plenty of tools to help you determine what you’ll need.
This checklist will tell you common forms and information you should have on hand. That may include:
-Prior tax returns
-Recent investment statements
-Recent 401k or other tax-deferred savings plan statements
-All information pertaining to any currently owned individual retirement accounts (IRSs)
-Info about current pension plans
-Current life, long-term care and disability insurance policies
-Recent statements from all mortgages
-A list of any debt balances and corresponding interest rates
Of course, the easiest way to prepare for filing your taxes is to speak with a professional tax preparer. They can help you regardless of your financial situation. Check out all the services that tax planners can offer.
Thanks to smartphones, you now have the ability to track your taxes whenever and wherever you want. While there are many app out there that let you access your tax information, there are still a few important things to keep in mind as you figure out which apps to use, and how to use them.
While apps can speed up the tax tracking process, some things are not instantaneous. The IRS’ app, IRS2GO , reminds users that there may be a wait when it comes to checking your refund status. Users can check their refund status 24 hours after the IRS acknowledges that it received an e-file return. The wait for mailed paper returns is four weeks. Also, the app is updated once a day so there’s no reason to check multiple times a day.
There are several apps to use year-round that will make filing your taxes remarkably easier. iXpenseIT tracks expenses, receipts and other information that you’ll need once tax season rolls around. Its photo feature lets you make any receipt a digital receipt, making it easier to stay organized. If you’re going on a business trip, Expensify can help you keep track of deductibles like meals and mileages. And speaking of mileages, Mileage Log+ can help you track mileage logs from frequent trips so it’s easier to get a deduction or reimbursement.