Preparing your taxes is one of the least enjoyable tasks that you will have to do each year, and it should come as no surprise that this process can be extremely overwhelming to many people. Due to feeling overwhelmed, it is easy for people to overlook a couple of important factors when filing these taxes, and this error can result in being forced to pay heavy fines or face an audit.

Luckily, you can follow these two tax tips to help you ensure you do not commit a couple of the more common tax filing errors:

Consider Your Cancelled Debts

The modern financial system makes it relatively easy for individuals to access credit, but this can lead to people having difficulty repaying these debts. When this occurs, they may have the debt cancelled through repossession or foreclosure. Interestingly, many people make the critical error of not including this information in their taxes. 

When a debt is cancelled, the government will usually treat it the same way as income is handled. As a result, you will owe taxes on the debts that are cancelled. The only way to avoid this tax penalty is to have the debt forgiven through the process of filing for bankruptcy. 

Document Your Home Office Deductions

For those that work from home, tax time can be especially confusing because you will need to consider the costs of doing business from your home. You will likely need electricity, internet and a host of other tools. Luckily, you can deduct these expenses from your tax burden, but many people make the error of failing to document these expenses. 

The easiest way to document these items is through keeping receipts and utility bills for several years after you file. If you are audited in the future, deductions from previous years can be inspected, and you may be required to submit proof of these expenses to have the deduction stand. When you are unable to prove these expenses during an audit, you may be forced to repay the deduction that you were given. 

Proper tax preparation and planning requires you to understand many of the nuisances of the tax code. However, this can be exceedingly difficult for individuals that have career and family responsibility. By understanding the importance of including cancelled debts as income and the need to document your home office deductions, you should be better prepared to make it through your taxes without committing potentially grave errors that can lead to audits or fines.

To learn more, contact a company such as Jeff Baker & Associates, PS.

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