You don’t want to get tripped up by the tax code. Unfortunately, it’s all too easy to overlook some of the more subtle details. If you aren’t careful, you could make some big mistakes on your tax return. Then you’ll really be in a mess when the audit comes!
Working with a qualified tax professional for both tax planning and filing your tax return can help you stay in the clear. Review these common problems as a guide for double-checking your situation this year. When you know what you’re up against with the tax code, communicating with your accountant or tax preparer can actually be pretty straight-forward.
3 Categories to Watch in the Tax Code
To tax, or not to tax? There are plenty of items that aren’t taxable. But the ones that are taxable won’t always be common knowledge. Without doing a little research, the following three scenarios can cause people a lot of trouble.
1. Free or Traded Services
Maybe your brother-in-law helped you remodel the kitchen this year. Or perhaps your business traded services with another local company. Most people don’t realize that these events are usually taxable items. These types of services, according to the tax code, will almost always be taxed, just like any regular income. You might think you’re getting something for free, but that work has legitimate value. Whatever that fair market value is for these services will need to be reflected in your tax return as income.
2. Unemployment Compensation
Another way the tax code might surprise you is with your unemployment compensation. It’s typically taxed, so you need to count those funds as part of your annual taxable income. Of course, there can be exceptions.
Keeping an eye on the latest tax code developments will help you prepare for the upcoming tax season. We’ve had times in the past where unemployment income was exempt from federal and state taxation. Again, talking with your local accounting firm and tax planner is a great way to better understand your situation for the current tax year.
3. Legal Settlements
This category can be one of the worst. Navigating legal settlements in terms of the tax code often requires a professional review. In a nutshell, though, it comes down to whether your legal settlement replaced something else that’s taxable. Basically, if you were dealing with any legal issues during the year, it’s a good idea to get some support with your tax return too.
Need Help Filing Your Tax Return?
Truth be told, the scenarios above really only scratch the surface on what can get forgotten with tax preparation. There are a handful of other items to consider as well, including life insurance proceeds or even special prizes you might have received over the course of the year.
Getting your tax return done right helps keep you—and your bank account—on track for success. Whether you know you’ve got a unique tax situation on your hands or you think it’s just another “typical” year, we’d be happy to help you out! Let NSO and Company take some of the stress off your plate. Just give us a call at (317) 588-3131 to schedule your consultation!