Navigating the U.S. tax system can be challenging. How you will file depends on your income and filing status, as well as which tax deductions and credits you can claim. Your taxes are your responsibility, even if someone assists you in filing them.1 As you prepare your taxes, here are some common filing issues that you may be able to manage with a bit of preparation.
Keep in mind that this article is for informational purposes only. It’s not a replacement for real-life advice, so make sure to consult your tax, legal, and accounting professionals before modifying your strategy. Remember, tax rules are constantly changing, and there is no guarantee that the treatment of certain existing rules will remain the same.
Error 1: Overlooked Side Income
Taxpayers must claim any income they’ve received in a tax year. One area that some taxpayers overlook is claiming side money that is in addition to their normal salaries. If you receive income from efforts outside your regular wages or self-employment, then you are obligated to report what you receive.
This money usually isn’t reported on a 1099 or W-2 and can include income from the following sources (and more): 2
- Hobbies that yield a profit
- Bartering for services or property
- Forgone interest from below-market loans
- Canceled debt, including discounts on mortgage loans
- Social Security benefits to spouses and dependents (subject to filing status and income)
- Unemployment compensation
Error 2: Unrealized Tax Breaks
Tax breaks can help you manage the taxes you owe or change your liability, resulting in greater benefits for you. While deductions are one form of a tax break, others include tax credits, exemptions, and certain tools designed to help you manage your tax burden. 3
Error 3: Wrong Filing Status
Your filing status can greatly impact your taxes because it defines your standard deduction and tax brackets. A common reason people choose an incorrect status is that their status has changed during the tax year. Before filing your taxes, be sure that you’ve updated your tax paperwork to reflect any changes to your filing status.
The five tax filing statuses are:
- Single: Taxpayers who aren’t married, are divorced, or are legally separated (as state law dictates).
- Married Filing Jointly: Taxpayers who are married and will file a combined joint return. Widow(er)s can typically file a joint return within the first tax year of losing their spouse.
- Married Filing Separately: Taxpayers who are married and choose to file separate tax returns, which may or may not decrease their tax liabilities.
- Head of Household: Taxpayers who are typically single and pay at least half of all home expenses for themselves and a qualified person.
- Qualifying Widow(er) with a Dependent Child: Taxpayers whose spouse has died within the past two years and who have a dependent child, assuming other qualifications are met.4
Error 4: Incorrectly Claimed Dependents
Taxpayers can claim dependents for whom they are financially responsible during a tax year. The IRS defines a dependent as a “qualifying child” or “qualifying relative.” Taxpayers can no longer claim personal exemptions for each dependent, and they can miss out on other tax benefits by incorrectly claiming or forgetting a dependent. Be aware that if you have a blended family in which you share children with another taxpayer, you could end up accidentally claiming children when only one parent would be able to do so.5,6
Error 5: Not Having Proof of Purchases
Your paperwork is crucial for filing taxes correctly and includes everything from your pay slips to receipts. Beyond helping you file taxes, your documents also serve as proof of the claims you make on your return. Should the IRS find any errors or choose to audit you, you’ll need these records to back up the numbers.
A partial list of items to have on hand for verifying your financial records includes receipts, mileage, documents on life events, and medical and expense records for home improvements.7
Error 6: Not Accounting for Income
Your or your family’s income is the key determinant of how much you’ll pay in federal taxes. The IRS will tax you at a rate depending on the total you report.
In Conclusion
Filing your taxes can be a complex responsibility, and accidental errors can be easy to make. By being diligent, carefully strategizing, and keeping tight records, you can improve your ability to file taxes in a timely fashion while attempting to follow all of the federal and state guidelines. Even if you’re choosing to work with a tax professional, you are responsible for making sure you correctly file your financial details.
Remember, if you have any questions about your financial life, we’re here to help you navigate this complicated landscape. We always welcome collaborating with your tax professionals to align the strategies you take across your financial priorities. You can call or email the financial professionals in the First Financial Investment & Retirement Center at 732-312-1534, mary.laferriere@lpl.com or maureen.mcgreevy@lpl.com
Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker/dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. First Financial Federal Credit Union (FFFCU) and First Financial Investment & Retirement Center are not registered as a broker/dealer or investment advisor. Registered representatives of LPL offer products and services using First Financial Investment & Retirement Center, and may also be employees of FFFCU. These products and services are being offered through LPL or its affiliates, which are separate entities from and not affiliates of FFFCU or First Financial Investment & Retirement Center.
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This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. Consult your financial professional before making any investment decision. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial professional for further information. These are the views of FMG Suite, LLC, and not necessarily those of
the named representative, broker/dealer, or investment advisor and should not be construed as investment advice. Neither the named representative nor the named broker/dealer nor the investment advisor gives tax or legal advice.
Sources: 1-7 IRS.gov, 2024
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