3 of the Biggest Mistakes You Can Make on Your 2023 Taxes

One of the worst parts about doing your taxes is that there are so many ways to mess them up. Missed a deduction you qualified for? You just cost yourself money. Forgot to report some of your income to the IRS? Have fun filing that amended return.

Most mistakes are fixable, but they can still be costly. Here are three of the worst mistakes you definitely want to avoid this tax season.

1. Not filing a return when you owe taxes

Not filing your tax return is a big mistake most of the time, even if you’ve already paid your taxes during the year. Many Americans qualify for a refund and some also earn refundable tax credits that can shrink your tax liability below zero. That could mean an even bigger refund for you. But you’ll never see a dime if you don’t file your return to prove what you paid and what you actually owed.

Read more: we researched free tax software and put together a list of the best options here

Things are even worse for those who owe the IRS and fail to file a return. These individuals get slapped with a failure-to-file penalty worth 5% of their unpaid taxes per month for every month their return is late. This maxes out at 25% of their unpaid taxes. They’ll also pay a failure-to-pay penalty worth 0.5% of the unpaid taxes per month, also with a cap of 25% of the unpaid taxes.

Bottom line, it makes sense to file a return whether you expect to owe the IRS or not. If you don’t think you can submit yours by the April 15 deadline, request an extension for free. This will give you an additional six months to file your return. However, it doesn’t give you additional time to pay what you owe, so you could still face failure-to-pay penalties if the amount you paid in taxes throughout 2023 wasn’t enough to cover your full tax liability.

2. Not paying what you owe

Receiving a surprise tax bill is stressful, especially if you don’t have the cash on hand to pay for it. But the worst thing you can do is avoid it. You’ll incur the failure-to-pay penalties mentioned above, and the IRS could pursue you for tax evasion. That could lead to even steeper fines, plus jail time.

Instead, explore the IRS’s payment plan options to find a method that works for you. There are short-term payment plans with terms of 180 days or less. There are also longer-term plans that require monthly payments. However, you’ll still rack up penalties on your unpaid taxes while using these plans.

You could also try an offer in compromise. This is where you tell the IRS what you can afford to pay toward your tax bill. It will evaluate your offer and consider your income, assets, expenses, and ability to pay. If it accepts, you make your payments as agreed and you’re off the hook for the rest.

3. Not keeping proof of your tax breaks

Tax deductions and credits reduce your taxable income and tax bill, respectively, so you can keep more of your money. But you can only claim them if you’ve met all the eligibility criteria and you have all the necessary documentation to prove it. For example, if you claim that you purchased a laptop for your small business, you need the receipt for that purchase to write it off as a business expense.

You don’t have to submit your documentation when you file your taxes. But you could find yourself in serious hot water if the IRS audits you. No paperwork means no tax break, and that could lead to a massive bill.

Make sure you hold onto your paperwork even after submitting your return. Ideally, you’d keep all your tax-related documents for at least three years after filing or even longer. When in doubt, it’s best to hold onto them.

This is far from an exhaustive list of tax mistakes, but if you avoid the three above, you should be off to a good start. And if you have any questions, don’t hesitate to reach out to a tax professional for clarification. You could find one locally if you’d like. But many tax software now offer access to tax professionals for a fee as well. Just be sure to take your time and review everything carefully before you finally submit your return.

Our picks for 2024’s best credit cards

Our experts carefully review the most popular offers and select those that are worthy of a spot in your wallet. These standout cards come with fantastic benefits like generous sign-up bonuses, long 0% intro APR periods, and robust rewards.

Click here to learn more about our recommended credit cards

Source link

About The Author

Scroll to Top