The 3 Most Common Tax Laws That People Get in Trouble for
Did you know that the U.S. Tax Law is comprised of over 74,000 pages? This figure does not even include the tens of thousands of pages of regulations that have been written to interpret the law. With all of this information, it is no wonder that people have a difficult time understanding everything and often make mistakes. Here are three of the most common.
Failing to Report All Income
If you earn any money from side hustles or other freelance work, you’re required to pay taxes on that income just like you would with any other job. But many people don’t realize this and end up getting into trouble when they fail to report that income at tax time. Companies who hire contractors are required to send out 1099 forms documenting the amount paid, so the IRS knows what you should have reported. If you don’t report it and they catch it, you’ll be subject to penalties and interest. Don’t despair – if you’re receiving this type of income, you’re also entitled to a plethora of business deductions that will help soften the taxes you’ll be expected to pay. Be sure to consult a tax professional who is familiar with these deductions to make sure you take advantage of all that you are legally entitled to!
Claiming Ineligible Deductions
Deductions are the IRS’s way of acknowledging that business expenses can be costly and offering some relief. But there are rules about what expenses can and cannot be deducted, and people often make the mistake of claiming deductions they’re not entitled to. For example, you can only deduct business expenses that are “ordinary and necessary” for running your business. This means that things like fancy office furniture or expensive meals while entertaining clients may not be deductible. This can vary, of course, depending on the nature of your business.
The IRS has a list of what they consider to be eligible deductions, so be sure to check that before you claim anything. If you believe that you’re entitled to a deduction that IRS has rejected, we recommend reaching out to one of the tax lawyers in your area to make sure you are allowed to take advantage of any tax benefits you’re legally entitled to.
Failing to File Taxes
This one might seem obvious, but every year there are people who simply forget to file their taxes or put it off until it’s too late. If you don’t file your taxes, you could end up owing the government a lot of money in back taxes, penalties, and interest. Setting up a tax organization system is the best way to avoid the stress and added expenses that come with failing to file taxes. Whether you choose to use a manual system or one of the many apps available these days, you’ll march toward tax day with ease and confidence.
If you’re ever unsure about any aspect of your taxes, it’s always best to consult with a tax professional to avoid any potential problems.