Filing income taxes is a small fry for people who do not generate equivalent income in substantial proportions. However, the question of income and taxes are a big problem when you earn a lot of money. This is especially true for high earners who pay more than 28% for every dollar they earn. When it comes to filing income taxes, there is no room for mistakes, as calculation errors can increase the tax you owe. Here are some examples to consider when filing a tax return.
Inaccurate Income Reporting
Income tax preparation can be a very challenging task that requires attention to detail and accuracy to do well. It is important to understand the filing requirements and how to apply the correct tax rules. Uncertainty around tax laws increases income reporting error. It all comes down to good bookkeeping and communication with money managers. These are the people who track, report and monitor financial activities. They need to know exactly what is going on in the business that affects finances and taxes. Schedule regular appointments to update those responsible for your money, such as your accountant, financial advisor, and tax advisor.
Omission of Income from the Tax Return
Many people receive income during the year that they don’t know is taxable. So when they file their returns, they are missing income which, when audited, leads to owing additional taxes. Some examples of income commonly omitted from tax returns include income received by an agent on her behalf, fringe benefits, and barter income earned in the course of business.
Miscalculating profits and losses
People with a wealth mindset understand the importance of investing for the future. Their balance sheets are often full of assets they buy to generate short-term and long-term income. In cases where investments do not pan out and produce the expected returns, portfolios will be rebalanced to sell underperforming in exchange for more favorable options. When it comes to investments and taxes, the rules vary depending on the type of assets you own. It is important to know the tax laws that regulate the sale or disposition of the things you own, since its incorrect application can generate a huge tax bill in the end.
If you’re not sure what accounting and tax rules apply to your income tax return, check out Publication 525, Taxable and Nontaxable Income, and let me know how it turns out for you.
