If you make more than $100,000, it's important to avoid common tax mistakes to ensure that you're maximizing your deductions and minimizing your tax liability. Here are some top tax mistakes to avoid:
1. Not taking advantage of tax-deferred retirement accounts: If you're not contributing to a tax-deferred retirement account, such as a 401(k) or an IRA, you're missing out on an opportunity to reduce your taxable income.
2. Failing to itemize deductions: If you're not itemizing your deductions, you may be missing out on valuable tax breaks, such as the deduction for state and local taxes paid or the mortgage interest deduction.
3. Forgetting to report all income: Make sure to report all income, including income from freelance work, rental income, and investment income. Failing to report all income can lead to penalties and interest charges.
4. Not keeping accurate records: It's important to keep accurate records of all tax-related expenses, such as charitable donations, business expenses, and medical expenses. Without proper documentation, you may not be able to claim these deductions.
5. Overlooking tax credits: Tax credits are valuable because they directly reduce your tax liability. Make sure to explore all available tax credits, such as the child tax credit, the earned income tax credit, and the education tax credits.
6. Failing to pay estimated taxes: If you're self-employed or have income that's not subject to withholding, you may need to pay estimated taxes throughout the year to avoid penalties and interest charges.
7. Not seeking professional tax advice: If your tax situation is complex, it may be beneficial to seek the advice of a tax professional who can help you identify all available deductions and credits and ensure that you're in compliance with tax laws.
Note: It is especially important if you are an entrepreneur or self-employed that you take advantage of setting up a Simplified Employee Pension Plan (SEP), whereby you can make contributions to your retirement account just as you would be able to a 401(k) with an employer. While self-employed individuals do have certain advantages regarding deductions, it is equally as important, even more so if you are a commissionable earner that you plan and budget for your retirement years.
If you would like to know more about tax-efficient strategies, reach out to us at 775-325-4649 or email us at info@mvplwrc.com.
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