Taxes 2023: Common Mistakes You Want To Avoid as the Tax Filing Season Opens
No one ever said doing your taxes was easy. According to CNBC, the IRS estimates that the average taxpayer spends about 12 hours on their tax return — and spends an average of $230 on tax software or professional tax preparers to help out. With a complicated filing process and tax code, it is easy to make mistakes.
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This week marks the official beginning of tax season. The filing deadline to submit 2022 tax returns (or an extension to file and pay tax owed) is Tuesday, April 18, 2023. Taxpayers requesting an extension will have until Monday, Oct. 16, 2023, to file.
While the IRS will sometimes correct errors it finds during processing, more often than not, filing an incorrect return means you’ll have to file an amended one later… and maybe pay a penalty along with it. So, when the time comes to sit down and work on your taxes, make sure you double check your returns for little mistakes that could end up costing you big.
“A small error in a Social Security Number can delay if not stop a refund from being issued,” said Scott Kadrlik, a CPA and managing partner at Meuwissen, Flygare, Kadrlik & Associates. “A bank account error will delay refunds for a long time.”
Here are some of the most common mistakes that taxpayers make on their returns and things you should triple check before filing.
Negligent Errors
Carelessness leads to one of the most common mistakes: putting in wrong information, whether it’s your Social Security number, bank account number, or even your name and birth date (yes, this happens). Makes sure to check you have the right filing status identified, too. The IRS Interactive Tax Assistant can help you choose the right filing status.
One mistake that has become a lot more common during the COVID-19 pandemic is that many taxpayers are using expired ID numbers to file their taxes. “You need an ID that is not expired, we see that a lot especially because of the pandemic, they forget that they did not renew their license,” Camille Fields, a tax pro with Jackson Hewitt in Ohio, told ABC6/FOX28.
Tax forms can be confusing, so always pay extra attention to the instructions. And, in your haste to rid your house of tax forms and get them into the hands of the IRS, don’t forget to sign and date your forms!
Math Mistakes
Tax preparation software does all the dreaded math calculations for e-filers and is recommended by the IRS. But when manually filing your return, keep an eye out for pesky math errors — these are among the most common mistakes found by the IRS. Pretend that you are back in school, and double-check your work to make sure your addition, subtraction, multiplication, etc., arrive at the correct amounts.
The IRS finds millions of math errors on returns every year. Besides basic miscalculations, taxpayers stumble with choosing incorrect figures from tax tables or schedules and make inconsistent entries and inaccurate limit amounts.
Missing Income or Deductions
Another common mistake is not including all of your income. This is especially relevant in the age of the side hustle when many Americans earn extra money in their spare time to supplement their main source of income.
“A lot of people aren’t aware that it’s not just W-2 income, it’s self-employment which includes your side gigs. Unemployment [benefits are] also taxable as well,” noted Fields.
Some taxpayers also forget to include interest, dividend and investment income — all of which need to be included in your total income. Make sure you have all your income sources accounted for before signing and filing your return.
“Things like missing insurance, taxes or depreciation on a rental, depreciation or home office on self-employed business, or sales tax deduction as an itemized deduction,” are common things that Dan Henn, a CPA in Rockledge, Florida, notices — especially on do-it-yourself returns.
Charitable contributions are also fertile territory for mistakes. One common mistake occurs when you receive a benefit in exchange for your donation, such as tickets to an event. In this case, you need to deduct the fair market value of the tickets from your charitable contribution, according to Bloomberg Tax.
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Cryptocurrency Tax Reporting
A mistake that occurs with increasing frequency these days is failing to report cryptocurrency transactions. As Bloomberg Tax noted, crypto is treated as property for federal income tax purposes. Any capital gain or loss on virtual currency transactions must be recognized on your return.
Keep an eye out for the updated crypto question on the first page of Form 1040: “At any time during 2022, did you (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” If you answered yes to this question, you should report all of your taxable cryptocurrency transactions on your tax return.
Typically, your crypto capital gains and losses are reported using IRS Form 8949, Schedule D and Form 1040. Your should include ordinary crypto income using 1040 Schedule 1 or Schedule C if your earnings come from self-employment.
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