The Most Common Tax MistakesCategories News & Updates
Making mistakes when dealing with tax is pretty easy to do. Tax law can be cryptic and it changes constantly, so it is little wonder that people can get confused.
Are you concerned that you may be paying too much tax? Let’s take a look at a few of the mistakes we see often.
Inaccurate Tax Records and Returns
It’s tedious keeping records and receipts. Figures get mixed up and receipts disappear down the back of the sofa. Hey, mistakes happen!
So, what typically occurs if you make an error concerning your tax due to inaccuracies? What do the IRD do? It depends on the nature of the error. Often, errors can result in penalties and fines, but the IRD can show discretion when the errors are minor and genuine. For example, if you wrote down the wrong figures by mistake, you can ask IRD to correct any mistakes.
You need to tell the IRD:
- the tax type and period containing the error
- the amount of tax in the error
- the nature of the error
- how the error occurred
- how and why the error was identified
- what the amended figures in the return should be to ensure a correct assessment is made
You’ll still have to pay any tax owing because of the mistake, but if you pay it by the due date set there will be no late payment penalty (or non-payment penalty, in the case of an Employer monthly schedule (IR348)).
The IRD will then amended the assessment and tell you how much you have to pay and when to pay it. If you have more than $100 tax to pay, you’ll likely be charged interest. Don’t put it off to tomorrow, though, as missed due dates and mistakes cost money when it comes to the IRD.
Missing Charitable Donations
You can claim donations to charities.
However, in order for them to count, each donation must be over $5 and you must provide receipts.
The receipt must state the following:
- the name of the donor(s)
- the amount and date of the donation
- a clear statement that it is a donation
- a clear statement at the top of the page if the donation is a payroll giving donation
- the signature of an authorised person, and an official stamp with the name of the approved donee organisation.
- the word “copy” or “replacement” should be clearly shown on any replacement receipt.
Kiwis are a generous lot and quite often give to charities. However, many forget to claim their donations back against their tax. So next time you give generously, ask for that receipt and keep it!
Keep in mind that not all donations to charity can be claimed. There are a few conditions and charities usually have to be registered. You can check the conditions here.
Incorrect Tax Codes
If your tax code is wrong, you may be under or over taxed. Under taxation sounds good, but it can mean penalty fines, interest and having to make up the difference all at once!
When you start a job, you fill out a tax code declaration form, known as an IR330. If the tax code is wrong, sometimes the IRD will catch it and notify your employer. Need to check that you’re on the right tax code? Here’s the IRD form.
The tax codes all have different rates associated with them, and some specify additional payment deductions. For example, an “SL” code denotes “Student Loan”.
Forgetting to File Your Tax Return
If you are required to file a return and you forget, the IRD will estimate the amount of tax they think you owe. This is called a default assessment. The problem with a default assessment is that you may end up being overcharged – or worse – attract penalty interest if the IRD determine that you have underpaid. You may also incur a late filing penalty.
If you’re a little late, contact the IRD and explain the reason why. Sometimes they’ll grant an extension, but don’t leave it too long.
If you fail to pay your taxes by the due date, you may have to pay late payment penalties. These can mount up – especially as they are charged monthly – and sometimes you won’t even be aware the penalties are happening.
Late payment penalties consist of:
- initial penalties for paying tax late, and
- monthly penalties on any amounts that remain unpaid.
- If you file your employer monthly schedule but do not pay the amount calculated, you may also have to pay non-payment penalties.
Penalties are calculated on the amount of tax that was paid late or that remains unpaid. The only good news is that late payment penalties are not charged on unpaid tax of $100 or less. The interest rates can be quite steep – typically 1% monthly per month. So, 12% per year, which is significantly higher than bank interest rates.
What to do if you’ve made a mistake on your tax return?
There are many mistakes we come across.
A common one is forgetting to specify all income, interest, or dividends. Again, this is why keeping good records is crucial because it’s so easy to forget to include some minor interest payment or dividend. So how do the IRD know? They do a lot of data matching, so it’s likely only a matter of time before they spot it.
Another is failing to declare cash income. This is more serious than it sounds, as it is classed as tax evasion. Tax avoidance is legal, tax evasion is not. What is tax avoidance? Tax avoidance is the legitimate minimising of taxes. An example might be claiming a tax deduction. Tax evasion is not paying taxes that are owed, either deliberately or by omission. The penalties can be painful, so best not go there.
If you make a mistake, then it’s best to clear it up sooner rather than later. If all this sounds a bit much, then why not talk to us? We’re here to help.
Here at MyTax, we’re 100% New Zealand owned and operated, with a team of people that have vast experience in accountancy and taxation. Because we’re an IRD-approved tax agent for e-File and B2B, we can prepare and file tax refunds electronically with the Inland Revenue, making it easier and faster for you to get your tax refund sorted.
It’s how we provide New Zealand with safe, fast and reliable tax refunds. And even provide the bonus of Fly Buys.