As summer comes to a close, we are quickly reminded that there is not much time left in the calendar year, and that tax season may be upon us sooner than we expect. Now is as good a time as any to start thinking about your taxes, planning when you will do them, and learning about what you need to successfully file your federal and state taxes in California.
To help ensure your taxes are correct and accurate, consider some of these common mistakes people make when filing their taxes in California. If you need help with your taxes, or need advice or representation during an audit, talk to the Roseville tax attorneys at NewPoint Law Group, LLP today at 800-358-0305.
5 Typical Tax Errors
Even those with years of experience may be making errors in their taxes that they didn’t know about. Before you file your taxes, you should understand these potential problems, and how to avoid them:
5. Filing Too Late
Every year, accountancy firms, tax companies, and even some mainstream restaurants and coffee shops practically celebrate “Tax Day.” For your 2017 taxes, the deadline to file will be April 17, 2018. While April 15th has been the typical Tax Day, the day has been moved for the 2016-2019 calendar years, pushing Tax Day back because it conflicts with Emancipation Day, a public holiday in Washington, D.C.
Even though the date has been pushed back, giving people a couple extra days to file, thousands of Americans still miss the deadline. Filing your taxes late can mean the possibility of tax penalties and interest. It may also mean the IRS files a “substitute return” on your behalf, which may miss credits or deductions you would otherwise be entitled to receive. Always make sure to file your own taxes on time to avoid missing out or facing punishment.
4. Failing to Report All Income
The IRS requires you to report your “gross income,” meaning your total income before taxes. The IRS’ definition of gross income includes “all income from whatever source derived,” under 26 USC § 61. The Tax Code goes on to list specific things that are included. Some of the following items may commonly be missed, but should always be included in your reported income:
- Interest on accounts;
- Alimony and spousal support payments;
- Discharged debt (i.e. forgiven debt, not paid-off loans);
- Bequests from a deceased person’s will;
- Rent or royalties paid to you; and
- Tips, fees for personal services, and “under-the-table” pay.
While many people try to exclude money from jobs like babysitting or tips from waiting tables, these are all legal forms of “income.” Failing to report these wages could be considered tax evasion, and may catch up to you, creating tax penalties, interest, and potential criminal charges.
3. Filing as a Contractor When You Don’t Need to
Some jobs are not particularly clear as to whether you are an “independent contractor” or an “employee.” Other employers may be intentionally misleading or may misclassify you. Especially in the realm of household employees, such as maids, nannies, housekeepers, and gardeners, employers may attempt to classify you as an independent contractor. In other industries, it may be common practice for employers to intentionally mischaracterize a worker as an independent contractor instead of an employee. Employees may do this to avoid having to pay workers certain wages, avert the hassle of withholding taxes, or to avoid following state laws for employee break time and benefits. However, it is illegal to misclassify an employee.
The tax difference can be exceptional. Independent contractors are subject to a different tax rate than employees, and often end up paying closer to the 33% business rate. As a contractor, you may be entitled to different deductions, but they may be inappropriate if you should actually be considered an employee. If you got a 1099 form instead of a W-2, consider talking to a tax attorney and your employer about whether you should truly be an independent contractor or an employee.
2. Forgetting State and Local Taxes
Most people remember to pay their federal taxes and file their yearly tax returns as necessary, but sometimes state and local taxes slip your mind. When tax season rolls around, it is vital to remember that you may owe taxes to the State of California as well as your local county taxes. Placer County (for those living in and around Roseville) and Sacramento County (for those living in or near Sacramento or Folsom) each collect their own taxes, as does California itself. It’s important to remember to file these taxes, too, when April rolls around.
1. Miscalculating Estimated Withholding
Every year, many Americans get large tax refunds. While this may seem like a great time to treat yourself to something nice, it may actually be a better time to recalculate your estimated withholdings. When you start a job, you usually file a W-4 form with the employer, but may never reconsider those estimated withholdings. If you get large tax refunds, that means you are likely paying too much tax throughout the rest of the year.
Recalculating your estimated withholdings at the beginning of the year may mean paying less tax overall. While this may mean a smaller tax refund, it may also mean spreading that money around throughout the rest of the year and improving your monthly budget. Talk to a tax professional for help understanding how much tax you should be paying up front.
Sacramento and Roseville Tax Attorneys
If you need help filing your tax return in California, or you need help defending against an audit or understanding the consequences of potential tax problems, call the Roseville tax lawyers at NewPoint Law Group, LLP today. Call 800-358-0305 today for a free consultation with our tax attorneys.