According to CNET, the IRS audited only 0.4% of tax returns in 2022. Even though the chances of an audit are low, many people may still be at risk.
Tax laws are notorious for their complexity and intricacy. The ever-evolving tax code, filled with numerous rules, exemptions and deductions, can be a daunting puzzle to solve for many individuals. While most people aim to comply with tax laws to the best of their ability, the sheer complexity of the system can lead to confusion, and unfortunately, that confusion can sometimes land taxpayers in hot water.
Misunderstandings
Misunderstanding the eligibility criteria for deductions and credits is a common problem. Taxpayers may incorrectly claim deductions, either due to a lack of knowledge or because they misinterpret the complex tax code. This can result in overstatements of refunds or underpayments of taxes, both of which can lead to penalties and additional tax liabilities.
Constant changes
The evolving nature of tax laws compounds the potential for confusion. Tax laws frequently change whether by new legislation, updates or revisions. Keeping up with these changes can be challenging, and not staying informed can lead to outdated tax strategies and missed opportunities for savings.
The consequences of tax law confusion can be stiff. Not only do they include financial penalties but they could bring criminal charges. In many cases, it is the complexity of the tax laws that leads to mistakes and issues with returns, which is not always the fault of the taxpayer. Unfortunately, the system is not likely to change, which requires each individual to be proactive when it comes time to pay taxes.