As the tax filing deadline quickly approaches, each tax return preparer should take note of the following mistakes commonly found in this year’s tax preparation.
Mistake #1: Stimulus Checks
Many tax return preparers list the income received from government stimulus checks as ordinary income. These stimulus checks are NOT taxable income and do not need to be included on your tax return. They will not impact the amount of your refund, how much you owe or your income level for purposes of government benefit eligibility.
Mistake #2: Work-from-Home Deductions
Due to COVID-19 many North Carolina workers faced new changes and challenges to their work environment. Remote working has increased considerably and led to many purchases such as computers, work stations and routers for increased WiFi. Many tax return preparers now ask – can these work-from-home expenses count as tax deductions? The answer depends on whether you are an employee or a contractor. For employees, the answer is no. The Tax Cuts and Jobs Act eliminated home office deductions in lieu of the larger standard deduction. For contractors, using Schedule C, they may be able to deduct these types of expenses from their 1099 income.
Mistake #3: Quarterly Taxes
Contractors/freelancers/gig workers are required to pay taxes throughout the year via estimated quarterly taxes. Employees have the benefit of automatic payroll deductions but others earning income outside of standard employment do not have this automated pay-in strategy. The IRS requires estimated quarterly tax payments; however, many tax return preparers may not be aware of this requirement or not know how to accurately calculate the amount owed and end up underpaying. This could lead to a huge tax bill due in April. It can also trigger late fees and interest.
Mistake #4: Retirement Contributions
Retirement contribution limits increased by $500 this year and many tax return preparers are unaware of this change and therefore did not take advantage of it. The 401(k) base contribution is now up to $19,000 (up from $18,500) and the IRA base contribution (Roth and traditional) is up to $6,000 (up from $5,500).
Mistake #5: Health Savings Account Contributions
In addition to increasing the amount of money taxpayers can contribute to their qualifying retirement plans, they can also increase their contributions slightly to their health savings accounts (HSAs). Many tax return preparers are unaware of this change and it may cause some confusion for the 2020 tax return preparations. Self-coverage is now $3500 (up from $3450) and family coverage is $7000 (up from $6,900).
Mistake #6: Medical Expense Deduction
The threshold for deductible medical and dental expenses has fluctuated up and down over of the last several years. Tax return preparers should be aware that it is increasing again this year to 10% of adjusted gross income in order to qualify these expenses as deductible.
Mistake #7: Alimony Deduction
The Tax Cuts and Jobs Act eliminated the alimony deduction altogether beginning this year. Any alimony payments stemming from a divorce or separation agreement made this year will NOT be deductible.
Mistake #8: Form Errors
Many tax return preparers make simple mistakes when filling out the tax return forms. This can cause significant process delays and may even trigger an audit. To ensure that your tax returns do not contain any of these types of mistakes, enlist the assistance of professional and knowledgeable tax preparers.
At Murray Moyer, PLLC we strive to provide thorough, accurate and efficient tax preparation services for both individuals and businesses. Contact us today to get started on your 2020 return. The April 15, 2021 filing deadline is quickly approaching which leads us to conclude with our final common mistake….
Mistake # 9: Missing the Filing Deadline
Contact us today so that you do not make this costly mistake. Contact our tax professionals at (919) 846-6779 for a consultation.
Written by Michael Murray on March 8, 2021.