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Old 09-04-2008, 03:09 PM
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Ten Of The Most Detrimental Tax Habits of Careless Taxpayers!

1.Lacking a coherent tax strategy.
A Tax plan or strategy is a process of considering “various tax options” so as to determine when, and how a taxpayer should conduct both his or her personal and business transactions so that their potential tax liabilities are either eliminated or substantially reduced.

2.Pursuing a short sighted tax strategy.
For example, a business owner despite having little taxable income in the current year insists on electing the Section 179 depreciation deduction to save on his current tax liability. However, the Taxpayer could have saved more in taxes over time if he used the regular method of depreciation.

3.Not regularly consulting or seeking advice of a tax professional. Adding on to bad habits of taxpayers would be not consulting with their tax advisors on a timely basis. Many taxpayers wait until April 15th for ways to save on prior years’ taxes when in fact at this time, it is too late and nothing can be done about it.

4.Omitting certain deductions due to their complexity .
I had a client who chose not to itemize on his tax returns as he thought that doing so was complicated. Also, he did not wish to pay the additional fees associated with itemizing a tax return, a really stupid mistake.

5.Seeking tax advice from Non-Qualified Tax Experts.
Generally speaking, people rarely seek medical or legal advise from non-qualified people. The same should be true as far as Taxes is concerned. However, many taxpayers respond to tax tips from non-professionals.

Many tips might sound great, but do not feel so great when they put you into trouble with the IRS. If someone asked you to write off their personal travel expenses as business expenses, or writing off donations on their Schedule A without having made them with little or no documentation. Taking these actions could be considered a “Fraud” and the taxpayer could potentially face some serious tax penalties in the event they are revealed during an IRS audit.

6.Retaining a tax professional based on the fees of service rather than quality of service.
Using the cheaper service might cost less today, but you will probably end up paying a lot more in the long run. To save money on taxes, it is a better idea to choose a tax preparer based on his or her experience and quality of work, rather than how much he or she is charging you.

7.Exhibiting utter ignorance and disdain in the subject of tax.
This means lacking knowledge about how the tax law impacts an individual tax return and showing a total lack of interest in the subject matter. This results in not knowing the latest tax laws and therefore, missing out on opportunities to save on current and future taxes. It is recommended that taxpayers should regularly be reading business magazines and financial news magazines that cover some of the latest tax laws,

8.Not retaining a CPA to advise you of various provisions in tax laws that allow certain tax credits.
For example, a taxpayer did not elect to take various tax credits that were available to him because he was not aware of these. The taxpayer prepared his own tax return and since he did not consult a CPA, did not take advantage of the tax credit, a really costly tax mistake.

9.Retaining the services of an incompetent tax advisor.
There is a tendency to retain the same tax advisor even if they are not very good at what they are doing. Taxpayers simply subject themselves to poor service and higher taxes just out of a false myth that the IRS may audit them if they were to change their CPA. However, it may be true if you happen to continue changing your CPA every single year.

10. Being preoccupied with getting a tax large refund.
It is a commonly held belief that if a taxpayer receives a large tax refund, he considers himself extremely smart. In fact, a Taxpayer who receives a large refund is basically just getting back the money that he ‘loaned’ to the government without and interest. This money could have been used for savings or investments, or help reduce ones own credit card debt. Thus, getting a large tax refund is generally not considered a smart strategy.

Taxpayers with proper tax planning either adjust their withholding accordingly, or have their tax advisor compute their quarterly tax installments. Both of these will result in minimal tax refunds or liabilities at tax filing time.

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