February 4, 2019
Honest to Goodness: 5 Costly Mistakes Taxpayers Make
To help demystify the sometimes (VERY) confusing and arduous process of filing taxes, Real Smarts has once again partnered with Angela Morrison, CPA, of Huntington Tax Partners. In this installment of the TAX SMARTS Series, Angela shares some of the most common mistakes tax filers make that can cost them time, money, and added stress.
Real Smarts: Angela, we can imagine that in your years of tax preparation and filing, you’ve seen a lot. Can you share with us what you think are some of the most common mistakes tax filers make and how to avoid them?
Angela: Sure, one of the most common involves not capturing all business expenses. We tell all of our clients to keep their business income and expenses separate from their personal accounts, so it is easier to account for all of the income and expenses for the business.
Real Smarts: Got it. Separate business and pleasure. What else?
Angela: Next involves something called the de minimis expense election.
Real Smarts: The de what?
Angela: The de minimis expense election. It allows a taxpayer to deduct the cost of individual items costing less than $2,500 rather than capitalizing and depreciating them. This allows the taxpayer to get an immediate deduction. Beware though, the rules on this vary for rental properties.
Real Smarts: Can you give an example of such a deduction?
Angela: In the past, if a person purchased a computer for $1,500 they would capitalize and depreciate the property over five years or elect Section 179. If you make the de minimis election, you can expense the purchase immediately just like you do for other expenses. This goes for any piece of equipment that you buy under that $2,500 threshold.
Real Smarts: We feel smarter already. What else do you see?
Angela: Well this seems silly to point out, but we see a lot of transposition errors. It’s really important to review the numbers you provide.
Real Smarts: Got it. Check your math. What else?
Angela: A lot of filers don’t take advantage of miscellaneous state deductions. Massachusetts allows for additional deductions that the IRS does not allow such as: unlimited deduction for undergraduate student loan interest expense, rent expense, commuter/Fastlane passes, contributions to a 529 plan up to $1,000 or $2,000, and if you’re a state employee – contributions to a Massachusetts retirement plan of up to $2,000.
Real Smarts: We sure make a lot of mistakes. Anything else?
Angela: The last one involves not reporting the correct amount of tax payments made to the IRS and state. The one mistake that the government can catch quickly is the amount you are claiming as payments you’ve made to them. If the amount on the return does not reflect the amount received by the IRS/MA, you will receive a notice shortly after filing. Expect underpayment penalties and interest if you over-reported your payments.
Real Smarts: Thank you Angela. Make no mistake, this was very helpful.