5 Common Tax Mistakes to Avoid (or Correct) in 2023Articles/News, Offshore Account Update
Posted on February 28, 2023 | Share
Tax mistakes are common. But that does not make them okay. Taxpayers who make mistakes can face audits, interest and penalties, and these can all substantially increase the cost of federal income tax compliance.
With this in mind, all taxpayers—both individual and corporate—need to prioritize compliance during the 2023 tax season. Additionally, taxpayers who discover past mistakes when preparing their returns should correct these mistakes promptly before they trigger IRS scrutiny.
Tax Mistakes that Can Trigger IRS Audits, Investigations and Penalties
What are some of the mistakes taxpayers need to avoid during the 2023 tax season? Here are five examples:
1. Underreporting Taxable Income
One of the most common tax mistakes is also among the most dangerous. This involves underreporting a taxpayer’s taxable income. In the U.S., taxpayers must report all income from all sources, and their failure to do so can lead to allegations of tax evasion or tax fraud. Some of the most common reasons for underreporting taxable income include:
- Failure to report income from all sources
- Failure to report all taxable income from an individual source
- Improperly claiming credits, dependents or exemptions
- Improperly claiming charitable deductions or business deductions
- Math errors
2. Making Estimates or Assumptions
When preparing their federal income tax returns, taxpayers need to make informed decisions based on accurate information. Estimating your income or charitable contributions, assuming that expenses qualify for business deductions, and other similar types of mistakes can lead to high-risk IRS audits.
3. Filing Too Early (and Then Filing Too Late)
While taxpayers must file their returns on time, they must avoid filing too early (i.e., before they have all of the information they need to prepare their returns). When taxpayers file too early, they must also avoid the secondary mistake of waiting too long to file an amended return (or not filing an amended return at all).
4. Failure to Disclose Offshore Accounts
Under the Bank Secrecy Act, U.S. taxpayers that own offshore accounts must report these accounts to the federal government annually (provided that their aggregate balance exceeds an applicable threshold). Failure to report offshore accounts can also lead to substantial penalties.
5. Failure to Disclose Other “Foreign Financial Assets”
Along with offshore accounts, U.S. taxpayers must report various other types of “foreign financial assets” as well. Here too, failure to file can have severe consequences.
Correcting Past Tax Mistakes During the 2023 Tax Season
If you discover past tax mistakes when preparing your (or your business’s) tax returns in 2023, what should you do? In many cases, the best approach will be to file an amended return right away. But, this is not always the best option, and in some scenarios, it can be risky. To ensure that you make the right choice with your (or your business’s) best interests in mind, you should consult with an experienced tax lawyer promptly.
Get Tax Advice from Experienced Tax Lawyer Kevin E. Thorn
If you need to know more about correcting past tax mistakes, we encourage you to contact us to arrange a confidential consultation. To request an appointment with experienced tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 201-842-7696, email email@example.com or contact us confidentially online today.