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Common Mistakes in DIY Tax Preparation That AFH Owners Should Avoid
- Christina Nguyen
- Jan 29
- 3 min read
Tax preparation can be a daunting task for Adult Family Home (AFH) owners, especially when going the DIY route. While it may seem like a cost-saving approach, DIY tax preparation often leads to errors that can result in missed deductions, penalties, or even audits. Here are some common mistakes AFH owners make and how to avoid them.
1. Mixing Personal and Business Finances
One of the most common errors is failing to separate personal and business expenses. This mistake not only complicates tax preparation but also increases the likelihood of IRS scrutiny.
Why It Matters: Mixed finances make it difficult to identify legitimate business expenses, leading to missed deductions and potential penalties.
💡 What to Do: Open a dedicated business bank account and credit card for all AFH-related transactions.
2. Overlooking Eligible Deductions
AFH owners are often unaware of all the deductions they’re entitled to claim, such as:
Caregiving supplies and utilities.
Home office expenses.
Vehicle mileage for business-related travel.
Why It Matters: Missing out on deductions increases your taxable income and the amount you owe.
💡 What to Do: Keep detailed records and consult IRS guidelines to ensure you’re claiming all eligible expenses.
3. Misreporting Medicaid Waiver Payments
Under IRS Notice 2014-7, certain Medicaid waiver payments may be excluded from taxable income if they qualify as “difficulty-of-care” payments.
Why It Matters: Misreporting these payments can lead to audits or missed savings opportunities.
💡 What to Do: Work with a tax professional who understands AFH-specific tax rules to report these payments correctly.
4. Inadequate Recordkeeping
Poor documentation is a recipe for disaster during tax season. Missing receipts, invoices, or records of income can lead to denied deductions or penalties.
Why It Matters: Incomplete records make it difficult to substantiate your claims during an audit.
💡 What to Do: Use accounting software like QuickBooks to track income and expenses and store digital copies of receipts.
5. Underestimating Quarterly Tax Payments
Many AFH owners forget or underestimate their quarterly tax payments, leading to penalties and interest charges.
Why It Matters: Paying taxes late or incorrectly can result in financial strain and additional IRS scrutiny.
💡 What to Do: Set reminders for quarterly payments and use your previous year’s tax liability to estimate what you owe.
6. Filing Incorrect Forms
AFH owners sometimes file incorrect forms, such as submitting a 1099 instead of a W-2 for caregivers classified as employees.
Why It Matters: Misclassification can lead to IRS penalties and back taxes.
💡 What to Do: Understand the difference between employees and independent contractors and file the appropriate forms.
7. Not Seeking Professional Help When Needed
DIY tax preparation can quickly become overwhelming, especially when dealing with complex situations like Medicaid payments or multi-state filings.
Why It Matters: Mistakes made in an attempt to save money on professional fees often end up costing more in penalties and missed deductions.
💡 What to Do: Invest in professional tax preparation services to ensure accuracy and compliance.
Conclusion
While DIY tax preparation may seem like a cost-effective solution, it often leads to costly mistakes for AFH owners. By avoiding these common errors, you can save money, reduce stress, and ensure compliance with tax laws. If you’re unsure about any aspect of your taxes, don’t hesitate to seek professional help.
📩 Need assistance with your AFH tax preparation? Let’s connect! I specialize in helping AFH owners navigate the complexities of tax planning and filing.
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