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Tax mistakes can land you in some very hot water. Of course, it is normal to make genuine mistakes, and tax offices expect this. You can save yourself a lot of time, stress, and further headaches by getting it right the first time. From red flags to allowances, here are some tips.
Not Filing Your Returns
One of the most serious mistakes you can make when it comes to taxes is not filing returns. Even if you didn't make enough money to be taxed, you must still send your documents. If you don't, you can end up with hefty fines that will only add to your financial burden. This is also a common mistake in businesses, including nonprofits. You can learn how to start a 501(c)(3) or enlist professional services to help with business taxes as a registered nonprofit organization.
Ignoring Red Flags
You can make mistakes on your tax returns, and it is actually pretty common. However, the tax office can also make mistakes. You don't have to settle for mistakes on tax bills and what they say you owe. If something is obviously wrong, call your tax office to discuss it or hire a local accountant to do it on your behalf. Red flags include severe under or over-estimations. Maybe you haven't made a lot of money this year, but your tax bill is high. Or even the opposite can be true. Perhaps you made a lot of money, but your tax bill is low. Raise these concerns ASAP.
Side-Hustle Tax Mistakes
Earning money outside of your main job is known as a side hustle. Side hustles have exploded in popularity lately as many people look to meet rising costs. However, good financial management relies on filing taxes. Today, though, there are tax obligations on side hustles. In the UK, HMRC expects tax to be paid on side hustles that earn £1,000 or more, or £12,750 if it becomes your main job. The IRS in the US commands taxes when you earn $400 or more.
Not Declaring All Income
How much tax you owe is based almost entirely on income. While it is tempting for some people to leave out some income this is illegal and a serious mistake. You must declare all income. This includes pensions, investments and even inheritance. Side hustle income, gifted cash and savings interest are also included. These may not even be considered in your final tax bill, but you must declare them nonetheless. Leaving them out will end up with severe consequences.
Leaving Out Allowances
Of course, there are always ways you can pay less tax so don’t sleep on these. There are legal allowances that you must declare but have the outcome of lowering your tax bill. An easy example in the UK is working from home. You will automatically have hundreds deducted from your tax bill. Then you can add other expenses that are used for your job, such as software licenses for example. There are also disability allowances, benefit allowances and more.
Summary
Not filing tax returns at all is one of the biggest common tax mistakes. You must also file returns if you operate a side hustle. Always declare all income sources or you can face punishment.
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