11 Common Tax Mistakes That You Need To Avoid (2024)

FAQs

11 Common Tax Mistakes That You Need To Avoid? ›

1) Inaccurate Information

The No. 1 most common tax mistake by far is to include erroneous information on the return. While inaccurate information certainly can be an act of fraud, most tax return errors are just honest mistakes.

1) Inaccurate Information

The No. 1 most common tax mistake by far is to include erroneous information on the return. While inaccurate information certainly can be an act of fraud, most tax return errors are just honest mistakes.

All tax returns are compared with statistical norms, and those with anomalies undergo three layers of review by personnel. Audits then occur either by mail or in meetings at taxpayers' places of business. They can be unpleasant and are sometimes unavoidable.

Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don't go back more than the last six years. The IRS tries to audit tax returns as soon as possible after they are filed.

Unreimbursed moving expenses, if you had to move in order to take a new job (exception: active-duty military moving because of military orders) Most investment expenses, including advisory and management fees. Tax preparation fees (except for fees to prepare Schedules C, E, or F, which are deductible business expenses)

Bank account and routing numbers. Various tax forms such as W-2s, 1099s, 1098s and other income documents or records of digital asset transactions. Form 1095-A, Health Insurance Marketplace statement. Any IRS letters citing an amount received for a certain tax deduction or credit.

Additionally, you have to consider the state you live in. For example, if you live in California, they have a legal right to collect state taxes up to 20 years after the date of the assessment!

You would not be required to file a tax return. But you might want to file a return, because even though you are not required to pay taxes on your Social Security, you may be able to get a refund of any money withheld from your paycheck for taxes.

Under the American Rescue Plan, most eligible families received the first payment on July 15, and payments will continue each month for the rest of 2021. For these families, each payment is up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17.

What raises red flags with the IRS? ›

Taking unusually large deductions

So, if you claim a large deduction that doesn't make sense for someone in your income range, the IRS computers are going to flag that deduction. For example, if you make $50,000 during the year, the IRS is going to be suspicious if you claim $20,000 in donations to charity.

An examination may be conducted by mail or through an in-person interview and review of the taxpayer's records. The interview may be at an IRS office (office audit) or at the taxpayer's home, place of business, or accountant's office (field audit).

The taxpayers most likely to be audited are those with annual incomes exceeding $10 million — about 2.4% of those returns were audited in 2020. But the second most likely group to get audited are low- and moderate-income taxpayers who claim the Earned Income Tax Credit, or EITC.

Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.

Yes, after 10 years, the IRS forgives tax debt.

However, it is important to note that there are certain circ*mstances, such as bankruptcy or certain collection activities, which may extend the statute of limitations.

Who Is Audited More Often? Oddly, people who make less than $25,000 have a higher audit rate. This higher rate is because many of these taxpayers claim the earned income tax credit, and the IRS conducts many audits to ensure that the credit isn't being claimed fraudulently.

The IRS does not check every tax return; in fact, it does not check the majority of them; however, the IRS implements methods that track certain factors that would result in a further examination or audit by them.

Regardless of whether you're among the "high-income, high-wealth individuals" the IRS is targeting this year, your chances of being audited are still pretty slim: Of the roughly 165 million returns the IRS received in 2022, approximately 626,204, or less than 0.4%, were audited.

You cannot go to jail for making a mistake or filing your tax return incorrectly. However, if your taxes are wrong by design and you intentionally leave off items that should be included, the IRS can look at that action as fraudulent, and a criminal suit can be instituted against you.

It is a crime to cheat on your taxes. In a recent year, however, fewer than 2,000 people were convicted of tax crimes —0.0022% of all taxpayers. This number is astonishingly small, taking into account that the IRS estimates that 15.5% of us are not complying with the tax laws in some way or another.