Are you prepared for tax season? It’s that time of year again when you need to start thinking about filing your taxes. However, many people make common mistakes that can cost them time, money, and possibly even legal trouble. In this article, we’ll discuss the top five tax mistakes to avoid in 2023, so you can file your taxes with confidence and avoid any unnecessary headaches.
If you’ve invested in cryptocurrency, it’s important to report your sales to the IRS. Even if you don’t receive a 1099 from your exchange (like you would when selling stocks on Fidelity, Charles Schwab, etc.), you’re still required to report your basis, date of purchase, and sold amount and date. Think of it like reporting stock and investment sales. The IRS even has a checkbox on the tax return to confirm you had no cryptocurrency sales.
2. Download Your Own Documents
Many companies no longer mail tax documents, so it’s important to download them yourself. For example, mortgage companies may not send Form 1098 mortgage interest statements, while investment brokerages may not send annual 1099-B forms that track stocks and investments. Even ride-sharing companies like Uber and Lyft may not send Forms 1099-NEC or 1099-MISC, which provide an annual account summary. To avoid missing important tax documents, make sure you keep track of them each year and download them if necessary.
3. Always ask for Direct Deposit!
If you’re expecting a tax refund, it’s best to ask for direct deposit. We’ve seen cases where refund checks get lost in the mail or delayed, causing weeks or months of phone calls and a delay in getting your cash. Even if you owe taxes, it’s better to have the IRS or state tax agency debit your checking or savings account. Mailing a check is archaic and inefficient, and no one wants to spend hours on hold with the IRS chasing down checks.
4. Reminder to Always Report All Your Income
Some people believe that they don’t need to report income from side hustles or work if a Form 1099 wasn’t issued. This is a mistake that can result in paying additional taxes, penalties, and interest if your return is audited. To avoid this, always report all your income, even if you didn’t receive a 1099. This includes income from freelance work, rental properties, and any other source.
5. Track Your Income Throughout the Year
This is perhaps the biggest tax mistake people make: failing to track their income during the year. Whether you’re a W2 employee, sole proprietor, or operate an LLC or Corporation, the US tax system is “pay as you go.” This means you’ll need to track your financials and income through paystubs or a Profit and Loss statement to ensure you have enough tax withholdings or payments throughout the year. If you don’t plan correctly or have a good preparer/advisor, you can run into serious tax problems at the end of the year.
Conclusion: By avoiding these five common tax mistakes, you can save yourself time, money, and stress. Be sure to report your cryptocurrency sales, download your own tax documents, ask for direct deposit, report all your income, and track your income throughout the year. Taking these steps will help you stay on top of your taxes and avoid problems down the road. Start today to make next tax season easier.