7 Things Frugal People Never Do When Filing Taxes
Many people — especially those who expect to owe money when the time comes — dread filing their taxes. Not only is there the tax burden itself to deal with, but filing taxes often comes with additional fees from the software or service you go through. When all’s said and done, some taxpayers can spend hundreds or even thousands of dollars.
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Frugal people have to do their taxes, too, but the way they go about it might be a little different. In particular, they know and implement the best strategies that maximize their money and lower any tax bill they might have. Here are the top things frugal people never do when filing taxes.
Go to a Tax Professional
With companies like TurboTax out there, many frugal people file taxes using tax software rather than a tax professional. This can help them save quite a bit of money.
“Frugal people never choose to hire a tax professional to prepare, manage and file their taxes yearly. They cheap out and end up either doing it themselves or going to a local service for a couple hundred bucks max,” said Christian Maldonado, founder and CEO at Finsult. “Avoiding a tax professional helps to save them hundreds a year, as well as thousands to tens of thousands in a lifetime, when it comes to the preparation and filing of their taxes.”
This sounds like a good thing, and it definitely can be, but it’s important to be cautious. Otherwise, you could end up facing future risks or hardship.
“Frugal people don’t realize this is a situation where being frugal actually works against [them] in the long-term, as well as puts you at risk of an audit due to [their] lack of knowledge with the tax code when filing their own return,” said Maldonado.
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Skip Important Tax Deductions and Credits
Another area frugalists tend to focus on is those tax deductions and credits — all great ways to saving money and lowering their tax bill.
“Most frugal people will likely be familiar with potential tax deductions and credits they qualify for and never miss claiming them when filing their taxes,” said Laura Adams, money expert and founder of The Money Stack. “Claiming tax deductions and credits you’re eligible for reduces your taxable income or amount of tax due.”
Miss IRA Contributions
Contributing to an independent retirement account (IRA) or other tax-advantaged accounts can lead to a lot of potential savings in a given year. That’s why frugal people who can afford to do so maximize their contributions before filing.
“One thing frugal individuals never skip when filing their taxes is making last-minute contributions to their IRA accounts,” said Erika Kullberg, attorney, personal finance expert, and founder of Erika.com. “You can max out the previous year’s contributions until the tax filing deadline each year, so don’t worry if you’re a bit behind on contributions, you still have time to play catch-up.”
Keep in mind that the type of IRA you contribute to makes a big difference in how your money’s taxed.
“Depending on which type of IRA you contribute to, you save money on income taxes either now or in the future when you retire,” said Kullberg. “That means your retirement savings can stretch a lot further.”
Fail To Prepare
Failing to keep records of your expenses, income, and other financial changes throughout the year is a surefire way to pay more taxes than you ought — or to get audited. Knowing this, most frugal taxpayers maintain proper paperwork so that they’re prepared if something happens.
Among other things, documents to keep include receipts, bills, legal paperwork, and logs, and profit and loss statements.
Buy Things for Write-Offs
People who own their own business can write off certain purchases throughout the year, which can lower their taxes. But frugal people won’t usually spend money on these things unless it’s really necessary.
“If your business really needs something new, such as the copier that Oscar and Jim wanted in ‘The Office,’ that’s one thing,” said Scott Lieberman, founder of Touchdown Money. “But if you’re buying just to squeeze something in before the calendar changes, you’ve created a small deduction that doesn’t come close to offsetting the money you spent.”
Forget About Home Office Deductions
It’s easy to forget about those seemingly little things, like the home office deduction. But for frugal taxpayers who work from home, this is top of their list of things to deduct when filing taxes.
“If you work from home or have a side gig, you could very well qualify for the home office deduction which will result in a ton of savings,” said David Bakke, money-saving expert at DollarSanity. “Some people are afraid to take it for fear of triggering an audit — but if you definitely qualify for it and have documentation for all of your deductions, go ahead and pull the trigger.”
Procrastinate
Last but not least, frugal people don’t procrastinate when filing their taxes. Waiting until the last-minute to file can lead to a lot of issues — missed deadlines, forgotten tax deductions, missed paperwork, and a higher tax burden, to name a few.
Preparing early and filing as soon as possible gets the whole process out of the way. At the same time, it makes it a lot easier to avoid these potential complications.
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