Benjamin Franklin famously remarked, “…nothing can be said to be certain, except death and taxes.” While death is often a serious subject, you cannot take your tax obligations lightly. If you mess up your tax filing, you could find yourself in significant financial or legal jeopardy.
Like most of your Atlanta-area neighbors, you do your best to comply with the law. As you know, though, tax rules can be extraordinarily complex. Even with diligence, you may not always follow the law. Here are four ways you may inadvertently cheat on your taxes:
1. You do not report all taxable income
Perhaps the most common way you may be inadvertently cheating on your taxes is failing to claim all your income. Generally, all income you have is taxable unless some law specifically exempts it from taxation. Income can be either money, property or services. Therefore, you must do a comprehensive accounting of all possible income. Some income you may miss includes the following:
- Tips from waiting tables or bartending
- Free eggs for which you bartered
- Baseball tickets you won on the radio
- Payment for jury duty
- Income from selling jewelry at a craft fair
2. You pay household workers under the table
If you have a nanny or another household worker, your life may be simpler. Failing to comply with IRS rules for withholdings, though, may complicate your life substantially. Note, however, you are only responsible for withholdings for employees. If an independent contractor does work at your home, you probably do not have to worry about the tax implications.
3. You deduct volunteer work
Individuals have dozens of legal deductions they may claim. Typically, though, you cannot deduct the value of your time or labor when doing volunteer work. You also probably cannot deduct travel expenses beyond mileage for your volunteer activities. Still, you likely can deduct the value of any supplies you donate to the organization during your volunteer work. Nevertheless, if a charitable organization reimburses you for mileage or supplies, you should not try to deduct them.
4. You overestimate the value of your charitable contributions
Cleaning out your closet and donating unwanted items to a charity is a good way to declutter while helping others. It could also land you in trouble with tax collectors. If you overvalue your charitable contributions, an agent may question your deductions. Special rules apply to the donation of high-value items, such as vehicles, so you must be sure you comply with all regulations.
You do not want to find yourself in the middle of a tax audit. Still, while rare, tax audits are not exactly pleasant. If you inadvertently cheated on your taxes, you may be in for a nasty surprise. By understanding the common mistakes taxpayers tend to make, you can work to file your taxes correctly.