Common Mistakes Self-Employed Taxpayers Make
Self-employed taxpayers make common mistakes, such as entering incorrect names and social security numbers, reporting incorrect financial account information, and forgetting to report income. Failing to file on time is another possible trouble spot. Such mistakes may land self-employed taxpayers with IRS problems.
Entering Wrong Names and SSNs
Taxpayers frequently misspell their names and enter wrong Social Security Numbers (SSNs). If a taxpayer transcribes even a single digit on his or her SSN incorrectly, then the whole return is compromised. Using a nickname or abbreviation of a name is also prohibited. IRS computers compare information all the time, allowing them to identify this kind of mistake immediately and reject the return. The consequences of this mistake are refund delays and spending of additional tax dollars.
Forgetting to Report Income
Taxpayers sometimes omit some sources of income while filing returns. They, for instance, forget to report Form W-2 from a side gig and Form 1099-G from the state tax refund of the past year. Reporting all sources of income is compulsory, regardless of whether or not the employer has sent a W-2 or a 1099 form.
Meeting this requirement is usually a tough task for self-employed individuals who get several 1099s for services provided and are required to make quarterly estimated tax payments. A taxpayer may discard a 1099 form accidentally or mix it with the incorrect pile of papers. Arranging all the forms in an orderly manner is, therefore, crucial. Getting tax debt help can enable a self-employed taxpayer, who has accumulated a tax debt due to omitting some sources of income, to devise an effective solution for paying off the debt.
Reporting Incorrect Financial Account Information
Providing information from financial institutions like banks and brokerage companies is another potential pitfall. The IRS requires taxpayers to provide accurate information on their asset gains and losses. It also requires them to report shares and interest on their returns. Missing or getting a single digit wrong when reporting this sensitive information may result in serious IRS problems.
According to IRS, 20% of taxpayers file their tax returns seven days before the closing date. If such taxpayers encounter any challenges while completing their forms, they are highly likely to miss the deadline. Although filing for an extension will give a taxpayer more time, he or she will have to clear any income taxes owed by the original closing date.