10 Most Costly Tax Mistakes in 2022 (+ Infographic)
The tax season is nearing the end and if you rush through the filing process, you may make some costly mistakes that can cost you your refund, delay processing and even lead to a letter from the least favorite uncle, Uncle Sam.
1. Filing Errors
- Not filing at all.
- Not filing on time or requesting an extension.
- Waiting until the last minute.
- Filing without all the necessary records.
- Not notifying IRS of your change of address.
- Amending incorrectly.
- Not filing for a refund within 3-years.
- Not considering free filing options such as IRS Free File.
2. Incorrect Personal Information
- Incorrect name, SSN, date of birth of anybody on the tax return.
- Incorrect EIN for employers or brokers listed on Forms W-2 or 1099-R.
- Filing with an expired ITIN.
- Filing with a new name without first updating it with the Social Security Administration.
- Providing incorrect bank info.
3. Missing Documents & Receipts
- Not keeping copies of prior-year tax returns.
- Filing tax returns without including all
documents – missing W-2s, 1099-Rs, 1099-B.
- Not keeping receipts that support credits & deductions.
- Not retaining investment historical cost basis info.
- Not including Power of Attorney (POA) when filing tax returns for or with a deceased.
4. Incorrect Filing Status & Dependency
- Filing the wrong filing status.
- Claiming dependents that others supported.
- Filing as not a dependent when you were.
- Not including Form 8332, Release of Claim to Exemption for a Child by the non-custodial parent.
- Filing MFS instead of claiming Injured Spouse Relief (Form 8379) to offset spouse’s owed debts.
5. Deductions & Credits Inaccuracies
- Claiming credits & deductions without qualifying.
- Claiming expired provisions.
- Not claiming Earned Income Tax Credit (EITC) withAGI between $21,430 (single no children) to $51,464 (with 3+ children).
- Missing education credits & deductions, especially refundable American Opportunity Tax Credit (AOTC).
- Not including & reconciling Form 1095-A for marketplace healthcare coverage.
- Not claiming recovery rebate credit (RRC) for any missing stimulus payments.
- Not repaying first-time homebuyer credit.
- Withdrawing retirement funds early & not checking for the exceptions to the 10% penalty.
- Missing out on home sale exclusion of $250,000 per taxpayer.
6. Math Errors
- Calculating the wrong amount of taxable IRA distributions, SS income, pensions, or annuity, especially when prepared by hand.
- Claiming RRC & child tax credits when they were already paid out.
- Determining the wrong amount of EITC, other credits, or deductions.
- Claiming an additional standard deduction for age and/or blindness.
- Arithmetic mistakes.
7. Paper Return Errors
- Mailing the paper return to the wrong address.
- Not attaching forms required or forms with withholdings (e.g., Form W-2, 1099-R, W-2G).
- Not signing & dating the tax return.
- Not including enough postage when mailing paper filing.
8. Business Filing Mistakes
- Mixing personal & business expenses.
- Underpaying estimated taxes when the federal tax liability is more than $1,000.
- Filing Schedule C without expenses when expenses would be expected.
- Reporting Schedule C, E, F business income to qualify for maximum EITC.
- Not claiming Qualifying Business Income (QBI) deduction (up to 20% of business income or AGI).
- Writing off a loss for a hobby as a business.
- Not reporting rental income.
- Treating employees as independent contractors.
- Selecting the trader status incorrectly.
- Not reporting cash or 1099-NEC income.
- Not reporting virtual currency transactions.
- Not sending a payment or applying for an installment agreement.
- Not reporting foreign bank accounts.
- Not responding to IRS letters.
- Not reporting domestic workers.
10. Fraudulent Information
- Intentionally failing to file a tax return.
- Willfully failing to pay tax.
- Intentionally omitting income.
- Hiding or transferring assets or income.
- Claiming false or overstated expenses.
- Overstating basis to reduce capital gain taxes.
- Falsifying personal expenses as a business.
- Engaging in “sham transactions.”
- Using a false Social Security number.
10 Tax Mistakes Final 800 × 5550 px by Aki Stepinska