How To Avoid a Mistake on Your Taxes

How To Avoid a Mistake on Your Taxes

February 29, 2024

Learn to avoid tax return mistakes and protect yourself from overpaying or incurring penalties. You'll thank yourself for investing the time.

How To Avoid a Mistake on Your Taxes

February 29, 2024

We're in tax season. Some people prepare their returns themselves. Many hire a professional. Regardless, there's a chance you will make tax return mistakes. It can mean paying too much or paying a penalty and interest because you underreported income.

We've seen a lot of returns over the years. While mistakes can happen in many ways, most errors are caused by the same reason: change.

If you use a third party, remember they don't know what they don't know. Sure, they will provide you with a checklist to determine what they don't know. However, unless you complete it carefully, they may not be aware of an important change in your financial life. If you self-prepare, your tax prep software won't know, either.

To avoid a mistake, review what happened in the previous year and ask yourself, "How did my circumstances change?" When you determine that, you'll likely dodge a mistake on your taxes.

While this list is not exhaustive, we hope these examples will give you an idea of what change factors may impact your tax return.

    • You sold your house. Selling your home will trigger a tax on gains of more than $250,000 ($500,000 for married filers).
    • You sold another real estate property. All gain is taxable unless you lived in the home for at least two of the previous five years. Otherwise, it is treated as your primary residence, and the above point applies.
    • You moved. Tax forms delivered by mail may not find you at your new address. That means you should keep a list to ensure everything has arrived – and reach out to the financial institution if a form is missing.
    • You transferred your investments from one brokerage company to another. You'll need tax forms (1099s) from the old and new brokerage.
    • You invested in a new business or partnership. This investment will generate a separate taxable income (or loss), often reported in separate forms.
    • You started taking taxable distributions from retirement accounts.
    • You started taking distributions from a deferred compensation plan.
    • You contributed to a donor-advised fund or non-profits that are not part of your regular giving program.

In many cases, these changes will cause no problems. But occasionally, they will trip you up.

To avoid filing an amendment —or worse, to avoid overpaying tax – consider what changed from previous years. Then, make sure to reflect that change in your tax return. You'll thank yourself for investing the time.

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This article is not intended to provide tax, legal, accounting, financial, or professional advice. Readers should seek advice from qualified professionals who can review their specific circumstances. Old Peak Finance endeavors to provide information that is accurate and current. However, we cannot guarantee that this information has not been outdated or otherwise rendered incorrect by new research, legislation, or other changes. Old Peak Finance has no liability or responsibility to any individual or entity with respect to losses or damages caused or alleged to be caused, directly or indirectly, by the information contained on this website.

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