Don’t Make These Tax Filing Mistakes This Year
Whether you work out your taxes yourself or hire an accountant to do them for you, to say that there are “a lot” of things that can go wrong might be the understatement of the year. Even small mistakes can require you to completely redo your taxes or lead to processing delays that last weeks and months.
The Internal Revenue Service (IRS) is already saying this year’s tax season could take a while, mainly because they’re behind schedule due to the pandemic and understaffing. In fact, they put out a press release on January 24 of this year that urges people to check for errors and file electronically if they can.
“IRS employees are working hard to ensure a successful 2022 tax season while facing tremendous pandemic-related challenges,” IRS Commissioner Chuck Rettig noted in the statement. “People can take important steps to avoid processing delays and get their tax refund as quickly as possible.”
While checking your return for errors and filing online is common sense advice, there are quite a few new issues you’ll face this year. We reached out to tax experts to find out what tax filing mistakes they say consumers are encountering for the 2022 tax season, and here’s what they said.
Mistake #1: File Before You’re Ready
Robbin E. Caruso, who is a partner and co-head of Prager Metis’ national tax controversy practice, says filing early can become a problem, primarily because you may not have all of the 2021 tax information yet. appropriate you need.
For example, you may file early only to find you never received information about the investment income you need to report, or you completely forgot a handful of deductions you expected to take.
“This can cause significant delays in processing returns and receiving refunds,” she says.
Daniel Rodriguez of Hill Wealth Strategies in Richmond, Va., also points out that correspondence from the IRS regarding advance child tax credits was not spam and that you should wait for it if you haven’t received it. not already.
“Don’t throw away the letter from the IRS about enhanced child credit payments because you’ll need it to file your 2021 return,” he says. “The IRS sent families Letter 6419 outlining the amount they received in advance for child tax credit payments.”
Mistake #2: Messing up advance child tax credits
Speaking of advance child tax credits, Doug Campbell of Liberty Tax says that 50% of a taxpayer’s potential 2021 Child Tax Credit (CTC) may have been paid out as July CTC advance payments. 2021 to December 2021. With this in mind, taxpayers need to know whether they actually received CTC advance payments and the total amount of those payments.
We have already mentioned how the IRS issues letter 6419 to share this information. However, when preparing their 2021 tax return, a taxpayer can claim a child tax credit greater than the amount of CTC advance payments they have already received in 2021.
“If the taxpayer claims that the CTC prepayments they actually received differ from the amount reported in their 6419 letter, any requested refund will be delayed because the IRS will have to manually review that tax return,” he says.
Mistake #3: Entering incorrect information
Betterment’s Eric Bronnenkant says entering incorrect data on your tax return can easily spell disaster. Examples of mistakes to avoid include bank account errors, calculation errors, and forgetting to sign or date your return.
Math errors are fairly common, and typically the IRS will send you a notice that it has detected an error and has corrected it, along with any adjustments to your return as a result, he says.
Either way, avoiding mistakes can help you get your tax refund faster. “Double and triple check everything to avoid problems, and ideally use electronic filing software, which will take care of the calculations and make sure you tick all the administrative boxes,” says Bronnenkant.
Mistake #4: Not reporting crypto income
Bronnenkant also points out that more people are owning and selling cryptocurrency this year than ever before, and that the way these assets are taxed is changing. However, the IRS considers digital currencies to be “property” and they are taxed as such, he says.
In most cases, crypto becomes taxable when sold or traded, or when you earn money by holding crypto in an interest-bearing crypto savings account. You may also owe taxes on crypto gains if you convert from one type of crypto to another and lock in the gains in the process.
While many people still think crypto is anonymous, you can’t hide from the taxman when it comes to crypto income.
Mistake #5: Not paying concert taxes
Financial adviser Corey Noyes of Balanced Capital also says it’s crucial to account for income from “gig work,” like driving for Uber or Lyft or delivering food through DoorDash.
Noyes says many consumers misreport gig work income, but they also forget to keep track of all expenses related to it. For example, DoorDash drivers need to track expenses related to their automobile, including gas, oil changes, and tires.
“All of these expenses will help reduce your taxable income,” he says, adding that this is especially important since gig workers are liable for additional self-employment taxes.
Mistake #6: Forgetting to apply for unemployment income
Tatiana Tsoir, CPA, MBA, who is CEO and founder of Linza Advisors, says many people forget that unemployment income is taxable at the federal and state level and they don’t report it.
With many more people out of work in 2021 due to the pandemic and other factors, it’s likely that more consumers will forget this and run into problems with their tax returns as a result.
Mistake #7: Forgetting 529 plan and HSA contributions
Finally, Ellie Thompson or Money Therapy says it’s crucial to account for 529 plan contributions and Health Savings Account (HSA) contributions if you’ve made them. After all, there are tax benefits for contributing to a 529 College Savings Plan in some states, and HSA contributions are deductible for anyone with a High Deductible Health Plan (HDP) (up to annual limits). .
How much can you save on taxes if you contribute to these plans? Tax benefits for 529 college savings plans vary by state, but HSAs offered a tax credit of up to $3,600 for individuals and up to $7,200 for families in 2021.