Newsletter: Last Minute Tax Filing: How to Avoid Costly Mistakes

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Welcome to the FI Mastery Journey, a weekly newsletter where you receive actionable ideas from me to help tame financial chaos, get your financial house in order and live your legacy.

Here’s how it works: each week, you’ll receive one article written by me. You’ll also get three simple questions that go along with the week’s article to help jog your mind and inspire you to take small, bite-sized financial wellness actions.

And, you’ll also get an inside look at the research I’m reading.

Follow along for one year and you will have completed all the work necessary to keep your financial house in order.

My goal in all of this work?

To provide you with the tools, resources, and insights to help you take one step closer to becoming the master of your own financial independence journey.

This Week at a Glance

Last year, the IRS owed $1.3 billion to people who had made tax filing mistakes. Don’t be one of those people this year. Even if you’ve already filed your return, this week I talk about how taking a few short minutes to check for mistakes could save you thousands.
The yield on the US 10-year Treasury note rose above 4.50% this week, the highest level since mid-November, amid prospects that interest rates will stay elevated for some more time. The latest US inflation report surprised to the upside once again, with all metrics for headline and core prices coming in above forecasts.
ICYMI – Few will know who you are in 100 years. Your legacy is much more than the wealth you accumulate. It’s about the values and ideals you instill in your family. You need someone to carry it on for you. Last week we discussed how to work with your family to carry on a legacy spanning generations.

Tax Mistakes are Costly, Precision is Priceless

Making mistakes on your tax returns can cost you big time.

According to the IRS, nearly 17 million mathematical mistakes were made on tax returns filed in 2022.

And these errors not only involved not paying enough money to the government, it also involved leaving money on the table.

That’s because, last year, the IRS made a last call to 1.5 million tax filers who were collectively owed $1.5 billion in refunds that they had yet to claim.

Could you imagine your name being on that list?

One year, I was working with a client who had surrendered an insurance product that no longer suited their lifestyle needs. It was one of those situations where the insurance agent was looking out more for their bottom line than they were for my client’s best interest.

Nevertheless, my client got most of their money back from the insurance company. And when the tax documents came in the mail, in this case, a 1099-R, the taxable amount reported on their form was wrong.

Now, it wasn’t just wrong. The cost basis was reported as zero, meaning that my client was on the hook for tens of thousands of dollars in taxes due to this one reporting mistake.

Fortunately, we got on the phone with the insurance company, and after some back-and-forth over a couple of weeks, we were able to sort out the situation, and my client had no reported tax liability in this situation.

But could you imagine being in that position?

Knowing that this insurance company already cost you in lost opportunities, and now you’re potentially on the hook for a big tax bill?

I know my heart nearly stopped when I realized the consequences of that tax document.

But that episode drilled home the lesson that tax mistakes are costly, but precision is priceless.

That’s because haphazardly filing your tax returns can result in financial and personal setbacks, especially when you’re not paying attention.

How to Avoid Costly Tax Filing Mistakes

Therefore, you should slow down and check for tax document irregularities, reporting omissions, and preparation errors as we approach the April 15 deadline.

Here’s how to do it:

Step #1: Check Your Tax Documents

It’s crucial to check your tax documents, especially for things like accurate cost-basis reporting on 1099s.

Reporting institutions make costly errors more often than you think. If the numbers are wrong, you might pay too much tax.

Ask: “Do my tax documents accurately reflect my current financial situation?”

Consider any life changes or events over the past year, such as 401k transfers, annuity surrenders, or IRA withdrawals from various financial accounts.

Proactively request a corrected 1099 when necessary.

Step #2: Report All Your Income

It’s not just about paying your fair share; not reporting all your income can lead to an IRS audit.

That’s because the IRS checks income reported against information from employers and banks. Audits mean more scrutiny and potential penalties.

Ask: “Have I received all tax documents necessary to report my income accurately?”

Review your W2s, K1s, and 1099s to ensure that you’ve received all required documents from reporters.

Follow up with your financial institution’s website and download what you haven’t received.

Step #3: Review Your Tax Return

Even when a tax pro helps with your return, they can make mistakes because they’re busy and are human, too.

It’s smart to check your taxes yourself before signing them. This will help catch any mistakes and save you money.

Ask: “Does my return reflect all events that have transpired in my life last year?”

If your money situation has mostly stayed the same, but your taxes look very different, file an extension.

This won’t trigger an audit and can give you time to review your return for mistakes.

You can learn more by reading the full article here >>>

What I’m Reading

We’re all busy in the daily rush of things. That’s why I’m sharing a list of articles that I’ve read this week to help you stay on top of your own financial independence journey.

I’ve consolidated all of these links here for your ease of viewing.

I Made a Mistake on My Taxes
What Happens If I Don’t File My Taxes?
How the IRS knows you didn’t report income
How to Handle an Incorrect 1099 from the IRS
Made A Mistake On Your Tax Return? 15 Things You Need To Know

Thanks for taking a look,