BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Don’t Make These Tax Return Errors This Year

Following
This article is more than 2 years old.

Whether you work on your taxes yourself or you hire an accountant to do them for you, saying there's "a lot" that can go wrong may be the understatement of the year. Even small errors can leave you having to redo your taxes altogether, or result in processing delays that last for weeks and months. 

The Internal Revenue Service (IRS) is already saying that this year's tax season may take a while, mostly because they are running behind due to the pandemic and staffing shortages. In fact, they released a press release on January 24th of this year that urges people to check for errors and file electronically if they can.

"IRS employees are working hard to deliver a successful 2022 tax season while facing enormous challenges related to the pandemic," IRS Commissioner Chuck Rettig noted in the release. "There are important steps people can take to ensure they avoid processing delays and get their tax refund as quickly as possible."

While checking your return for errors and filing online are common sense tips, there are quite a few new problems you'll have to deal with this year. We reached out to tax experts to find out which tax return errors they say consumers are running into for the 2022 tax season, and here's what they said.

Mistake #1: Filing Before You're Ready

Robbin E. Caruso, who serves as Partner and Co-Lead of Prager Metis' National Tax Controversy Practice, says filing early can wind up being a problem, mostly because you may not have all the appropriate 2021 tax information you need quite yet.

For example, you may file early to find that you never received information on investment income you need to report, or that you forgot all about a handful of deductions you expected to take.

"This may cause significant delays in processing returns and receiving refunds," she says. 

Daniel Rodriguez of Hill Wealth Strategies in Richmond, Virginia, also points out that IRS correspondence regarding advance child tax credits wasn't junk mail, and that you should wait for it if you don't have it already.

"Don’t throw away the IRS letter about enhanced child credit payments because you will need it to file your 2021 return," he says. "The IRS mailed families Letter 6419 that shows how much they received in advance 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 advance CTC payments during July 2021 through December 2021. With that in mind, taxpayers need to know if they actually received advance CTC payments and the total amount of those payments.

We already mentioned how the IRS is issuing Letter 6419 to share this information. However, when preparing their 2021 tax return, a taxpayer may claim a Child Tax Credit in excess of the amount of advance CTC payments they already received in 2021.

"If the taxpayer claims the advance CTC payments they actually received differs from the amount in his or her Letter 6419, any refund claimed will be delayed because the IRS will have to manually review that tax return," he says.

Mistake #3: Entering Incorrect Information

Eric Bronnenkant of Betterment says that entering incorrect data on your return can easily spell disaster. Examples of mistakes to avoid include bank account errors, math errors, and forgetting to sign or date your return.

Math errors are pretty common, and usually the IRS will send you a notice that they’ve detected an error and fixed it, along with any adjustments to your return as a result, he says. 

Either way, avoiding errors can help you get your tax refund faster. "Double and triple check everything to avoid issues, and ideally use an electronic filing software, which will take care of the math and make sure you check all the administrative boxes," says Bronnenkant.

Mistake #4: Not Declaring Crypto Earnings

Bronnenkant also points out that more people own and have sold cryptocurrency this year than ever before, and how those assets are taxed is evolving. However, the IRS considers digital currencies to be "property" and it's taxed as such, he says. 

For the most part, crypto becomes taxable once sold or exchanged, or when you're earning money by holding crypto in an interest-bearing crypto savings account. You may also owe taxes on crypto gains if you convert one type of crypto to another and lock in gains in the process. 

While many people still think crypto is anonymous, you can't hide from the tax man when it comes to crypto earnings.

Mistake #5: Failing to Pay Taxes on Gig Work

Financial advisor Corey Noyes of Balanced Capital also says it's crucial to account for income derived from "gig work," such as driving for Uber or Lyft or delivering food through DoorDash. 

Noyes says many consumers fail to properly claim income from gig work, yet they also forget to keep track of all the expenses that go into it. For example, DoorDash drivers should keep track of expenses related to their automobile, including gas, oil changes, and tires. 

"All of these expenses will help lower your taxable income," he says, adding that it's especially important since gig workers are on the hook for extra self-employment taxes.

Mistake #6: Forgetting To Claim Unemployment Income

Tatiana Tsoir, CPA, MBA, who serves as CEO & Founder of Linza Advisors, says many people forget that unemployment income is taxable at the federal and state level and they fail to report it.

With many more people receiving unemployment in 2021 due to the pandemic and other factors, it's likely more consumers will forget all about it and run into problems with their tax return 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 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 everyone who has a high deductible health plan (HDP) (up to annual limits).

How much can you save on taxes if you contributed 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.

Follow me on Twitter or LinkedInCheck out my website