Summer is the time of year where we review all tax returns, scan them for mistakes, and do tax planning for the current year.
As we go through and review all of these, we see a lot of the same mistakes. So I wanted to make a post about the top 10 common mistakes we see filers make.
If you made any of these, you may need to go and amend your return.
Let’s jump into it.
This may be an obvious one, and it being late in the season, it may no longer apply to you, but make sure you have all of your reporting documents.
Compare your current year’s return to the prior year’s. Check any and all of your brokerage platforms, any banking platforms, crypto trading platforms, sports betting apps, for tax documents online.
Don’t file too early. You’ll receive your W-2 or 1099-NEC typically in January. Trading and banking institutions will often send their documents in February.
You have until April 15th, so there’s no rush. It’s better to be accurate. Depending on your situation, some of these documents may even increase your refund, or lower your tax liability!
If you want to max out your HSA using other cash on hand, don’t forget to report the portion you contributed outside of payroll. You’re likely entitled to that deduction!
Correcting this will require an amendment if you’ve already filed and the return has been accepted. Don’t let this be you - this can be an easy one to forget!
This deduction could save you a hundred dollars in taxes in many states.
Filing an extension will only give you an additional 6 months to file your return without penalty. Your payment is still due on April 15th.
Do your best to estimate your tax liability and make a payment if you can by the deadline. You’ll either be issued a refund when you finally file, or you’ll have reduced the amount of taxes you owe and thus reduce the amount of penalty you’ll be subject to.
Make sure you take a look at all of your available deductions. If you had out of pocket medical expenses, charitable contributions, mortgage interest, property taxes paid, etc. you may want to calculate the total allowable deduction you are entitled to.
People have gotten accustomed to simply defaulting to the standard deduction because of how large the deduction is. If you are a married filer, in 2024, your standard deduction is $29,200.
This means you’d need to have itemized deductions that usurp that amount to get any benefit from gathering your receipts and calculating your deduction. It’s easy to understand why some people don’t even think about it any longer.
For the charitably inclined, I’ve seen many people do it simply out of generosity. They don’t consider the potential tax impact.
Another explanation is that, similar to the point we just discussed, they don’t think they matter. They may even be correct.
Neither of these are good reasons to not pay attention to your contributions. Request your tax forms from your donees and total them up at the end of the year. You don’t want to miss out on some potential tax savings.
This is one of the most common errors that I see. It’s become one of the most utilized tax moves that high earners make yearly.
For those that don’t know, the backdoor Roth is a simple maneuver to make a non-deductible traditional IRA contributions and immediately convert it to Roth. This circumvents the income threshold that prevents high earners from making regular Roth contributions.
Failing to report the traditional IRA as non-deductible will disallow the Roth conversion.
Fixing this mistake requires an amendment. Again, don’t let this be you!
If you’ve had assets transferred to another brokerage and then you sell those assets this could affect you. It is not unheard of for the basis of these assets to not transfer correctly from firm to firm.
This means when you go to file and you’re looking at your 1099-B you may see proceeds being the sale amount, but the cost basis being $0.00.
This being accurate is unlikely in most cases. It’s probably not the case that you purchased or acquired securities or assets for $0.00.
You should only be taxed on the difference between the sale price and what you originally paid for the assets.
This issue can also take place with crypto exchanges.
Be on the lookout for unreasonable cost basis on your assets. If you have questions, you may have to get into contact with your broker.
RSU income is reported in your box 1 wages on your W-2. The amount of ordinary income received is your cost basis for those stock units. If you sold your RSUs in the same year you received them, the 1099 that you received for your stock sales could be misleading.
More often than not, the cost basis reported on that form will be incorrect.
To make sure that you have the correct information and that your basis is reported correctly, you’ll likely need to find a document labeled “Supplemental Tax Information”. Your broker should provide you with access in their tax document section on your account.
It is a common occurrence that people end up paying nearly double the amount of tax they should on these assets.
If you are fortunate enough to have QSBS eligible stock, that also has value, do not forget to claim this exclusion!This exclusion could wipe out up to $10 million in gains on your taxes.
Most commonly, the individual doesn’t realize the stock is QSBS eligible and simply does not report it, OR, they know it’s QSBS eligible and they fail to make the adjustment on their tax return.
Either way, make sure this is reported correctly.
This could save you hundreds of thousands of dollars in taxes!
These are the 10 most common tax return mistakes we see, make sure to avoid them!
Financial Advisor