Eight Tax Return Mistakes That Can Cause Problems

Today, January 29, IRS started taking declarations for 2023. Paying taxes is not cheap, but you can make it even more difficult and expensive if you make mistakes on your return, reminds Yahoo. Here are the 10 most common tax mistakes made by US residents.

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“And so it will do”

A big mistake many taxpayers make is being disorganized and/or irresponsible when filing their taxes.

On the subject: Three mistakes that could cause your US pension to be less than expected

If your financial records are in disarray, your financial situation could be on the verge of chaos without you even realizing it. A careless mistake or oversight in your declaration can cost you dearly. And if you, for example, forget to file a return on time, this can also lead to fines and late fees.

Confusion with deductions

The IRS allows taxpayers to take two types of deductions from their taxable income: standard (a government-set amount) or itemized (this deduction allows you to write off specific expenses). Taxpayers often do not understand the difference between these deductions.

The deduction you choose depends on whether your total itemized deduction (itemized deduction) exceeds the standard deduction. It may also be that you must take an itemized deduction because you are not eligible for a standard deduction.

Some taxpayers are unaware that they can choose between the standard deduction and the itemized deduction. But it's important. You should choose the option that provides the greatest benefit.

The greatest benefit from an itemized deduction can be obtained by people in whose lives an important event has occurred: the purchase or sale of a home; significant medical expenses or significant charitable donations.

Waiver of Medical Deductions

Many taxpayers misunderstand the rules for deducting medical expenses, including who is entitled to them and on what basis. But they can save you a significant amount on taxes. Don't ignore them! Especially if you incurred large expenses for medical services last year.

Incorrect calculations when selling shares

Incorrectly calculating the cost basis of shares sold, especially those with physical certificates, is a common error on tax returns.

Dividends reinvested over time must be included in the cost price. If you don't do this, you could pay more taxes than you should or run into fines.

Deciding not to report non-taxable income

If some of your income is not taxable, such as income from municipal bonds, you still need to report it.

Although tax-exempt income is not itself taxable, it can affect a person's tax rate and other important tax criteria.

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Each state has its own taxes and rules

Moving from one state to another can lead to tax gaps and hassles. Each state has different taxes, in addition, there are concepts "domicile" (tax base state). To avoid paying taxes in two regions or to avoid penalties for failure to pay some tax, carefully study the legislation on tax relocation, as well as all tax rules in the state where you moved. If you move, it is better to prepare the first declaration in a new place with a specialist.

Frequent tax mistakes of pensioners

Misunderstanding Taxation on Retirement Accounts

Retirees need to remember that different retirement accounts are taxed differently.

For example, withdrawing funds from a traditional IRA has different tax consequences than withdrawing the same amount from a Roth IRA. Making the wrong choices can result in higher capital gains taxes, higher Social Security taxes, and more. Sometimes it can even result in increased Medicare premiums.

RMD

The IRS requires retirees to withdraw a certain amount each year from their IRAs (Retirement Savings Accounts). This is called required minimum distributions, or RMDs.

If you're 72 or older, you'll likely need to start withdrawing some of your retirement savings. Failure to do so may result in fines and penalties of up to 50% of the amount you were supposed to withdraw and did not withdraw.

Unfortunately, retirees often don't know or understand the rules regarding annual RMDs.

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