9 Mistakes to Avoid While Income Tax Filing
As a relatively new resident in the US, there are many things to adjust to – a different culture, new sights, distinct workplace norms, and unfamiliar financial regulations. With so many things to get used to as an Indian professional in the States, taxes definitely sit high on the priority list.
IRS guidelines and the tax return system can be confusing, especially to newcomers who are unaware of the finer details that need to be considered when filing their income tax returns. The implications can include large and unnecessary financial losses. The best way to avoid receiving lower refunds and incurring penalties is to file your tax returns correctly.
What Are Some Common Mistakes That Individuals Make?
Mistakes are meant for learning, not repeating. That’s why we’ve compiled a list of the most common errors individuals make in their tax filings. Read on to know more about what they are, and how you can avoid them, while simultaneously maximizing returns.
1. Not Being Aware of Important Deadlines
Having a clear idea of important dates on the tax calendar can help you plan financially according to payment deadlines and refund dates, which is something many people neglect to consider. Paying your taxes on time and budgeting expenses according to when you’re likely to receive your refund can greatly ease financial burdens. Additionally, respecting IRS deadlines means you can avoid any nasty penalty fees, and also make the most of deductible contributions within the requisite timeframes. Being a fiscally responsible resident can help you avoid unnecessary legal obstacles, and does wonders for your personal finances.
2. Not Proofreading Your Forms
As is rightly said, the devil is in the detail. A shockingly large number of US residents receive delayed refunds because of their own doing. Silly spelling mistakes and small discrepancies in values declared on tax return forms can cause delays that can last weeks or even months.
Even the smallest of errors could result in you having to redo your taxes altogether, so make sure the information matches what is given on forms such as the W-2, or 1099, etc. Always remember to dot your I’s and cross your T’s!
3. Not Checking Your Eligibility and Residential Status
As an Indian professional and H1B visa holder, the Substantial Presence Test is an important component of being able to reside in the country legally and to receive the requisite benefits from paying taxes. The SPT is used to determine how long you have been in the country, and whether you are considered a resident for tax purposes. For more information, visit the IRS webpage.
4. Not Safeguarding Important Documents
Documentation is undoubtedly the most significant facet of filing your tax returns. The taxes you are liable to pay, and the refund you are eligible to receive, both hinge on the supporting documents you provide. This includes financial statements, mortgage statements, letters from the IRS substantiating credits you have claimed, etc. Additionally, keeping past tax returns is equally critical in protecting against potential audits. The IRS has up to three years to decide whether to audit an individual and in the event you are audited, the records can make the process easier.
Also read: The Ultimate Documents Checklist to File US Income Tax Returns
5. Not Checking Tax Brackets or Adjusting Tax Withholdings
Life is full of big changes: marriage, children, job changes, and relocations. What professionals often underestimate is the influence that these life changes can have on your taxable income. For instance, your marital status can impact the value of the deductions you can claim, and your employment status can influence the tax bracket you fall into. The IRS recommends revisiting your W-4 form on a yearly basis to retain control over your finances and potential tax liability.
6. Not Maxing Out Deductible Contributions
What seems to have become a buzzword, and rightly so, are deductions. We are revisiting this due to their sheer utility, although taxpayers seem to have forgotten them. When used correctly, tax deductions can considerably lower your taxable income, and therefore your tax bill. This is particularly useful while planning for your retirement, since contributions to 401k and IRA accounts are tax-deductible, hence affording taxpayers the twin benefit of smaller tax bills and growing nest egg.
7. Not Claiming Applicable Credits and Deductions
While deductions lower taxable income, credits lower tax bills. Both are incredibly useful in maximizing returns when harnessed strategically. Tax credits such as the Child Tax Credit, Kiddie Tax Credits, and Other Dependent Credits lower tax burdens. Additionally, proofs of payments towards loans, fees, charitable donations, and state taxes among others do the same. Most taxpayers fail to take note of where their money is going throughout the year, and then miss out on the opportunities to reap the benefits owed to them. It’s important to remember that the IRS cannot assume anything about your expenses and lower your tax bill in good faith. Getting sizable returns depends on what you declare and claim.
8. Not Filing Online or Asking for a Direct Deposit
The IRS is still battling large backlogs with skeleton staff amidst ongoing legislative changes, and hence urges taxpayers to file their returns online and opt for a direct deposit. Doing so will quell mounting frustration from both ends, and will quicken the refund process. Those who file electronically and provide their bank details can expect their accounts to be credited within 21 days of submission. Of course, it could take a little longer for those who have claimed credits that are prone to be misused (such as the Child Tax Credits), simply due to more stringent verification procedures.
9. Not Consulting a Professional
There is a reason we don’t self-medicate when we’re sick, a reason we don’t fiddle with our cars when it has broken down, and opt instead to visit a doctor or a mechanic. There is an implicit understanding and trust in the professional we choose to consult. We believe in their expertise and heed their advice.
There is no reason the same logic should not be followed when it comes to something as important as filing your taxes, especially when you’re dealing with tax returns in the US as a foreigner.
AOTAX is just the professional team you need: with over 15 years of experience, we’ve taken care of the finances of countless Indian IT professionals. We’ve helped ease tax burdens and made year-round tax preparations much easier. If you’re going to trust a professional, trust AOTAX and sign up for free today!
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