3 Common Tax Mistakes

Here are 3 common tax mistakes that many of us break almost daily. Respect them, and you'll reduce the chance of coming to grief with the Internal Revenue Service. 1. Keep business and personal affairs separate It might be overstated to say that the two should NEVER meet. You might sometimes do things with a double motive, for example having a lunch with a business colleague or going on vacation with your best client. However, you will be much better off if you can separate your income tax life into two very separate business and personal categories. That might sound extreme, but you are just following the tax rules. 2. Keep good records Most of us at one time or another violate this. There are many benefits to keeping good records other than just for an audit, but this is the main one that you want to stay away from. So that really says it all. This rule isn't just for people who run businesses though. Professional gamblers, even retirees playing the slots, need to keep a diary or other record of how much they bet and lose on each visit. That's because your occasional big win will be reported to the IRS by the casino and you can use gambling losses to offset your winnings. But if you don't keep good records, you could end up a two-time loser -- once at the tables and once to Uncle Sam! 3. Respect and keep those 1099s This might sound like an April 15-only item. In fact, how you handle third-party "information returns," such as 1099 misc tax forms, year-round will influence how easy or hard a time you have when you file your return and interact with the IRS thereafter. Much of what the IRS does, when it comes to monitoring taxpayers, is information return matching. When you list 1099 deductible expenses on your tax return, the IRS will match your return to this form to make sure you haven't overstated your deduction. Pay attention to these forms as they arrive. If you receive an incorrect 1099, contact the payer as soon as you receive the incorrect form. Explain the error and ask whether the payer has already sent a copy of the 1099 to the IRS. The best corrections are done this way, with the payer simply destroying the old forms and issuing a correct one for income taxes.