Side income and business activity create more taxpayer confusion than retirement or homeownership, tax

Starting a business or earning side income creates more taxpayer confusion than retirement, marriage, divorce, homeownership or job changes, according to a new survey from the National Association of Tax Professionals (NATP). 

In NATP's May poll of tax professionals, respondents overwhelmingly identified business activity and side income as the life events generating the most taxpayer questions and misunderstandings. 

The findings reflect the continued growth of self-employment, freelancing, gig work and other nontraditional income sources, all of which can introduce new filing requirements, recordkeeping responsibilities and tax-planning considerations. 

"Many taxpayers don't realize how quickly tax obligations can change once they begin earning income outside of a traditional W-2 job," said Tom O'Saben, EA, director of Tax Content and Government Relations at NATP. "What may start as a side project or occasional income stream can create filing requirements, estimated tax obligations and documentation needs that taxpayers aren't always prepared for." 

Tax professionals report that confusion extends beyond filing requirements themselves. Practitioners also identified understanding changes in tax outcomes from year to year as one of the most common areas of taxpayer misunderstanding. 

Why do taxpayers struggle to understand changing tax outcomes? 

According to survey respondents, taxpayers frequently question why their refund amount, balance due or overall tax situation differs from the previous year, even when major life circumstances appear relatively unchanged. 

Changes in income, withholding, deductions, credits and filing status can all affect a taxpayer's outcome, but many taxpayers expect similar results from year to year. 

"The tax return is often viewed as a comparison to last year rather than a reflection of what's happened financially over the past 12 months," O'Saben said. "Even relatively small changes can affect a taxpayer's overall result." 

Most taxpayers aren't making changes after filing season 

The survey also found that many taxpayers do not make proactive adjustments to withholding, estimated tax payments or planning strategies after filing season ends. 

Despite concerns about refunds, balances due or unexpected outcomes, practitioners reported that relatively few taxpayers actively change their approach before the following filing season. 

This disconnect between taxpayer concerns and taxpayer actions can contribute to recurring confusion and tax surprises year after year. 

Tax professionals continue serving as educators 

Open-text survey responses highlighted another recurring theme: tax professionals are often helping clients navigate confusion long after a return has been filed. 

Practitioners reported regularly answering questions related to extensions, payment deadlines, IRS notices, refund timing and other post-filing issues. 

Several respondents also identified inheritance-related issues and the death of a spouse or parent as significant sources of taxpayer confusion, despite those topics not being included among the survey's response options. 

The findings reinforce the growing role tax professionals play as educators and advisors throughout the year, helping taxpayers understand not only how to file returns but also how tax decisions, life events and administrative processes affect their overall financial picture. 

About the survey 

The May poll surveyed 258 tax professionals nationwide to better understand taxpayer misconceptions, post-filing behaviors and the life events generating the most tax-related confusion. NATP conducts recurring practitioner polling throughout the year to identify emerging trends and support taxpayer education efforts.