Steer clear of these at all costs.
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When we think about botching our tax returns, we might fixate on things like math errors and accidentally transposing numbers when copying them over from a W-2. But those are mistakes the IRS usually forgives — and will often manage to correct itself.
The reality is that you can botch your taxes to a far more extreme degree than that — and cause yourself a world of stress and financial loss in the process. So with that in mind, we spoke to Mark Steber, Chief Tax Information Officer at Jackson Hewitt, and asked him to pinpoint some major tax mistakes that could result in a world of hurt. Here are three he suggests avoiding in 2023.
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1. Filing your tax return late because you don’t have the money to pay the IRS
Many people who file a tax return end up being due a refund. But you might land in the opposite boat.
If you’re convinced you owe the IRS money from the 2022 tax year — say, because you earned $40,000 from a side hustle and never made estimated quarterly payments on your extra earnings — but you don’t have the cash in your bank account to pay that bill upfront, you may be inclined to try to make the problem go away by not submitting your tax return. Don’t do that.
“There are a lot of self-inflicted wounds people get into when they move into a balance-due situation,” says Steber. And being late with a tax return is basically akin to causing yourself financial pain for no good reason.
In fact, filing your tax return late is, as Steber puts it, “the single worst thing you can do” when you owe the IRS money. That’s because a late filing will result in its own penalty — one that’s separate from the penalty you’ll incur for being late with a tax payment.
Steber insists that there are many options for paying the IRS when you owe money and can’t satisfy your balance in full by the tax-filing deadline. Paying your tax bill in installments is one of them. So don’t delay your tax return, or file it late, because you’re short on cash.
2. Skipping out on tax help when you’re self-employed or own a business
If you have a simple tax return — you’re reporting a salary and some modest interest income from your savings account — then you may be equipped to file a tax return without help, especially if you use the right software. But if you’re self-employed or have your own business, then not hiring a tax professional could mean missing out on tax breaks that save you a lot of money.
There are many benefits for people who are self-employed, explains Steber. And a tax professional might know of some that you don’t. So while you’ll pay to use a tax professional, that fee might more than make up for itself in the form of tax savings.
3. Being liberal with tax deductions
There’s nothing wrong with claiming legitimate deductions on your tax return. If you own a business, for example, then by all means, write off the cost of your internet service and office supplies. But be very careful about claiming deductions that are questionable.
Although IRS audit rates have been down in recent years due to staffing shortages, Steber cautions that tax-filers should prepare for audit activity to increase. And so “this is not the year to start getting more creative on your taxes,” he insists.
This is yet another reason to hire a tax professional. Someone who knows the tax code inside and out will be able to determine which deductions you should feel free to take and which you should really pass on.
Avoiding tax mistakes could spare you a lot of upheaval this year — financial and otherwise. So do your best to steer clear of these three big ones.
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