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.

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

The Costs of Rushed Tax Returns

Now, the truth is that many of us hate paying taxes.

And if you’re one of them, you’re in good company.

Indeed, according to a recent Gallup poll, nearly two-thirds of Americans surveyed believe that taxes are too high.

This natural repulsion to taxes can naturally leave any of us with a desire to put off completing our returns for as long as possible, especially when we know we’re going to owe money, right?

Well, here’s the reality of the matter: when it comes to taxes, the only person watching out for you, other than your advisor, is you.

Indeed, rushing through your returns this year can cost you money, peace of mind, and, ultimately, your self-confidence in achieving your financial goals.

And chances are good that when you owe money, the IRS will be quick to send a letter to your home or office.

But, when you’re owed money, you can be sure that Uncle Sam won’t let you know until you take the time to find out.

Financial Costs

Now, like I mentioned earlier, there’s a financial cost for missing reporting errors that lead to you paying too much in taxes.

But there are also life-changing costs to not staying on top of your taxes that can have a profound life impact if you’re not careful.

And, this is exactly what happened to Willie Nelson.

Now, as you’ll likely recall, Willie Nelson was a renowned country musician who hit it big in the 1970’s and 80’s. And chances are, you’ve likely heard one of his songs like “On the Road Again,” or “Always on My Mind.”

And so, Nelson went on to make millions of dollars, but his run-in with the IRS is a classic tale of how a series of tax mistakes can lead to massive repercussions.

That’s because, after a successful career, Nelson was hit with a whopping $32 million tax bill due to mismanaged funds and tax avoidance strategies gone awry.

In fact, the IRS ended up seizing some of Nelson’s assets, but ultimately, to settle his debts, Nelson released an album called, “The IRS Tapes.”

Fortunately, Nelson was able to pull himself out of his financial hole and eventually settle the issue with the government.

However, the ordeal taught him (and us) a truly valuable lesson: and that’s that tax mistakes are costly, but precision—in finances and life—is priceless.

It’s a stark reminder of the importance of keeping a keen eye on our financial obligations.

The Cost of Peace of Mind

Now, rushing to file your taxes can not only cost you money, it can also cost you peace of mind.

It reminds me of this one time that our family took a last-minute road trip.

Now, we didn’t have any special destination in mind.

What it came down to was that we had some extra time on our hands, and we were in the mood for a short trip away from home.

Well, given the short notice, we rushed to pack our bags, and hurried to head off on our journey.

We were in a hurry to make the most of an otherwise long weekend.

But wouldn’t you know it, there was something inside of me that said that I missed something.

Have you ever had that feeling? Like you moved so quickly on something that you have this feeling in the pit of your gut that something you forgot could cost you?

Well, I knew I should have checked the garage door.

And you know what happened? I ended up spending the first half of our trip worrying about whether I had closed the garage door, and it completely distracted me from our family time together.

That’s why, when we’re not precise with how you approach your returns, you might be haunted by questions like “Did I miss something?” or “Will everything be okay?”

This happens because you’re anxious about the possibility of making mistakes and the consequences that could follow.

Tax mistakes are costly, but precision is priceless.

The Cost of Self-Assurance

And finally, while rushing through your taxes can cost you money and peace of mind, but the other thing that rushing does is that it can also cost you in terms of your self-assurance.

Now, I know that I sometimes confuse self-confidence with self-assurance.

So what’s the difference?

Well, self-confidence is when you believe you can do things well, like solving a math problem or playing a sport.

It’s about knowing you’re good at certain things.

Self-assurance, on the other hand, is feeling good about yourself, even if you’re not the best at everything.

It means you’re okay with who you are, no matter what happens.

And so, if you’ve been working to get your financial house in order, have made positive progress after a long-stretch of chaos and suddenly find yourself with a letter from the IRS and a potential tax bill, your self-assurance could take a hit.

You can start doubting yourself and saying things like, “after all of this work, I should have just reviewed my return one last time.”

To be sure, not being precise about your taxes can really shake your confidence, especially if you’ve been working hard to get your finances in order.

Indeed, imagine finally feeling like you’ve got everything under control, only to get hit with a surprise tax bill or audit because of mistakes on your tax return.

It’s like taking a big step backward just when you thought you were moving forward.

This can make you doubt your progress and abilities, turning what was a source of pride, and that’s prudently dealing with your money, into a source of stress.

That’s why mistakes are costly, but precision is priceless.

How to File a Precise Return

So then, what can you do to ensure you’re not rushing through your returns, paying Uncle Sam no more than necessary and not leaving money on the table?

Step #1: Review Your Tax Documents

Well, you can start by reviewing your tax documents.

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

That’s because reporting institutions make costly errors more often than you think.

And so, if the numbers are wrong, you might pay too much tax.

That’s why, as you go about your review process, ask yourself, “do my tax documents accurately reflect my current financial situation?”

Here what you’ll want to do is consider any life changes or events over the past year, such as 401k transfers, annuity surrenders, or IRA withdrawals from various financial accounts.

And if you do find errors, make sure to proactively request a corrected 1099 when necessary because no one will tell you otherwise.

Step #2: Report All Your Income

The next thing you’ll want to do is ensure that you’ve reported all your income.

Now, we’ve all let a small dividend income payment slide here or there.

But this step isn’t just about paying your fair share. Indeed, not reporting all your income could lead to an IRS audit.

That’s because the IRS checks income reported against information from employers and banks.

And this is especially the case if you have crypto income.

So then, audits mean more scrutiny and potential penalties.

That’s why you’ll want to ask yourself, “Have I received all tax documents necessary to report my income accurately?”

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

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

Step #3: Review your tax return before submitting.

And last, but certainly not least, you’ll want to review your tax documents one last time before clicking that button to eSign your returns.

Now, even when a tax pro helps with your return, it’s crucial to note that they can make mistakes because they’re busy and are human, too.

That’s why it’s smart to check your taxes yourself before signing them.

This approach will help you catch any mistakes and potentially save you time and money later on down the road.

Here, what you’ll want to do as you review your return is ask yourself, “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, then you may want to get another set of eyes on your return to ensure that everything is in order.

Tax Mistakes are Costly, Precision is Priceless

Either way, use these last few days to carefully evaluate the various components of your return to ensure you’re setting yourself up for success.

And if you’re worried about the April 15 deadline and unsure about anything in your return, file an extension.

No, filing an extension will not make you a target for an audit.

And it will actually help you avoid common mistakes that could lead to an audit down the road.

Either way, take some time to review your tax documents, income sources, and finalized tax return before clicking submit on your return.

Sure, you might just take your chances this time around.

But what could you do with an extra thousand dollars?

Maybe you’re not anticipating a refund this year, but you could save yourself thousands in taxes if you had a major life change that involved your finances and a reporting institution made a mistake.

The point here is that it’s worth taking a look.

Because ultimately, being a little more precise with your taxes could help give you peace of mind, preserve your self-assurance and take you one step closer to becoming the master of your financial independence journey.