Well, we’re coming up on the end of 2024. When you look back on this past year, you may find yourself in a far different place in life than you were in January.
And to my ears, “life changes” sounds a lot like “tax changes.” And with tax changes, there are a LOT of potential conflicts you may run into with the IRS. If you’ve been reading my writings and tax resolution tips (I hope so), that’s probably not news to you.
There are so many potential issues to be aware of, in fact, that I can’t cover them all in one session. So, consider this part one of a multi-part series discussing the 10 most common taxpayer disputes with the IRS.
Some of the biggest headaches arise from problems with your tax return. There are a number of pitfalls that can be quite easy to stumble into, especially if you are trying to account for any significant life changes or complex financial events.
My job is to ensure that you are aware of these common pitfalls before falling into them, but if you’re already there… well you can call me then too. So without further ado, here are the first three of the most common tax filing issues I see and some tax filing tips to avoid them.
1. Tax software disasters. Do-it-yourself tax software can be a convenient way to file your taxes, but it’s important to be aware of its limitations. These programs often rely on you to input all the necessary information accurately. A simple oversight, like forgetting a taxable bonus from a bank account, can trigger an audit or lead to penalties.
There is an element here of “you get what you pay for.” While tax preparation software seems like the “cheaper” option, in reality it may cost you far more in penalties (and missed opportunities).
To tag onto this, beware of “ghost preparers,” who claim to be qualified to prepare your return, but have no idea what they are doing. These scammers often charge low fees but may not provide accurate or complete tax filing tips, leaving you vulnerable to IRS scrutiny. If you’re not sure if your Yamhill County tax preparer is legitimate, you can always check with the IRS. Or of course, just forego them altogether in favor of a tax pro you know you can trust.
2. Retirement account misunderstandings. Retirement accounts, like IRAs and 401(k)s, offer significant tax benefits. But, there are strict rules governing contributions and distributions. Overcontributing to an IRA can result in hefty penalties. It’s crucial to stay informed about annual contribution limits and withdrawal rules.
3. Tax withholding errors. Proper tax withholding is crucial to avoid underpayment penalties. Your Form W-4 determines how much tax is withheld from your paycheck. If you don’t claim the correct allowances or fail to update your W-4 when your income changes, you may owe the IRS a significant amount of money.
Even the most sophisticated tax software or (seemingly) experienced McMinnville tax professionals can make mistakes or give harmful tax filing tips. It’s essential to review your tax return carefully before filing, and especially so if you’ve experienced a lot of financial changes in your life this year.
As a savvy taxpayer, you should always be proactive in managing your tax affairs. By understanding common tax traps like these and taking the right steps to avoid them, you can minimize your risk of a costly IRS audit or penalty.
But what if we could take this a step further? What if you could proactively identify and resolve potential tax issues before they escalate into major problems? You absolutely can (and should) do that with a savvy McMinnville tax specialist you trust (I know a good one).
Helping you navigate change the right way,
Lisa Heckman
