How To Avoid Making The Common Tax And Bookkeeping Mistakes?

by Loretta Valero-Smith - Date: 2010-04-12 - Word Count: 596 Share This!

Even though who consider themselves in the financial loop may fall prey to some of the most common tax or bookkeeping mistakes. Changing tax codes and updates or revisions to tax law can be one challenge. Then there are more frequent errors that shouldn't be made - but they are. Sometimes it comes down to a misinterpretation of what tax code language means and that can result in saving the wrong records or not keeping track of important expenses.

This year, those buying a new home face a challenge when it comes to Tax Form 5405, allowing new home buyers to deductions. Some taxpayers assume that new homeowners must never have owned a home before. That simply isn't true. Even those who are buying a new home - but have already owned another home - can get this deduction if they meet the requirements, which include living in the home at least five out of the previous eight years. By assuming that 2nd or 3rd time homeowners aren't eligible for this new homeowner credit, a significant tax deduction could be lost. Unfortunately, it looks like this is going to be a common tax mistake, with a potential loss of thousands of dollars in deductions.

When it comes to knowing which receipts to keep and which to toss, a common tax error is misinterpreting the advice not to save receipts less than $75. True, the receipt isn't recorded but if ever audited, a taxpayer will have to provide some evidence of having been at a particular location, including details about business associates who were there and more. Wouldn't it be simpler to keep the receipt? Even if not required, it could make record keeping so much easier.

Wait till the last minute to gather up your records and you could have a major headache as well as wasted time and extra stress. A software package that keeps track of all bank accounts and automatically balances them is a lifesaver. Failing to use a good one is a common bookkeeping and tax mistake. Procrastinators, take heed, and find the right software, including ones that keep track of business inventory. With so many options available, there really isn't any excuse to avoid simplifying one's life. Keep financial records organized and tax season might not seem so ominous.

Many people let deductible automobile expenses slip by. This is among the most frequent tax mistakes made because taxpayers get confused about how to keep track of deductions properly. They also forget what is truly eligible as a deductible tax expense. They need to become familiar with standard mileage deductions to and from work, automobile depreciation information to put on tax forms and more. To be on the safe side, check with tax professionals for acceptable deductions.

Taxpayers should never forget that they need to record their cash purchases and have records to prove how the money was spent. Save those receipts and even write the word "cash purchase" on them if you need a reminder. This includes petty cash and gifts given as cash. Don't fall prey to the common tax error and assume that cash doesn't count. It absolutely does, especially at tax time.

Other areas worth double checking at tax time include gifts given to children or others, becoming familiar with the latest tax updates and codes and double checking with a good accountant to make sure nothing was forgotten. If you made the mistake of lumping business and personal expenses on one credit card, try using a single credit card for business expenses and avoid that bookkeeping mistake next tax season.

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