Common Tax Mistakes and How to Avoid Them
Filing taxes can be stressful, especially with changing laws, tight deadlines, and a mountain of paperwork. Even small errors can lead to delayed refunds, IRS audits, or costly penalties. Fortunately, most tax mistakes are avoidable with a little preparation and awareness.
This guide covers some of the most common tax mistakes and how you can steer clear of them to ensure a smooth and accurate filing.
Mistake 1: Missing the Filing Deadline
One of the most frequent—and costly—mistakes is failing to file your taxes on time. The IRS imposes a penalty of 5% of unpaid taxes per month, up to a maximum of 25%. On top of that, interest accrues on the unpaid balance.
How to Avoid It:
- Know the Deadline: For most taxpayers, the due date is April 15, unless it falls on a weekend or holiday.
- File for an Extension: If you need more time, file Form 4868 for a six-month extension. Remember, this extends the filing date—not the payment due date.
- Set Reminders: Mark tax deadlines on your calendar to avoid last-minute stress.
Mistake 2: Entering Incorrect Personal Information
Typos in basic information like your Social Security Number (SSN), name, or bank account details can delay refunds or even lead to rejection of your tax return.
How to Avoid It:
- Double-check every digit of your SSN and bank routing numbers.
- Ensure names match exactly as they appear on Social Security cards.
- Review all personal information before submitting.
Mistake 3: Failing to Report All Income
Some taxpayers overlook side gigs, freelance work, or investment income when filing taxes. However, the IRS receives copies of income statements (W-2s, 1099s) and can match them to your return.
How to Avoid It:
- Keep a record of all income sources, including freelance platforms, rental income, and dividends.
- Wait to file until you’ve received all tax forms.
- Use tax software that prompts you to include additional income sources.
Mistake 4: Overlooking Valuable Deductions and Credits
Many taxpayers miss out on deductions and credits that could significantly reduce their tax bill. Commonly overlooked items include student loan interest, medical expenses, and energy-efficient home upgrades.
How to Avoid It:
- Review a checklist of available deductions and credits before filing.
- Use tax software or consult a professional to identify less obvious opportunities.
- Keep detailed records of expenses throughout the year.
Mistake 5: Math Errors and Miscalculations
Incorrect math is one of the top reasons tax returns are flagged by the IRS. Even small calculation mistakes can lead to underpayment, overpayment, or delayed refunds.
How to Avoid It:
- Use reliable tax software to handle calculations automatically.
- If filing manually, double-check figures and use a calculator.
- Review your return carefully for accuracy before submitting.
Mistake 6: Forgetting to Sign the Return
It might seem minor, but forgetting to sign your tax return is a common mistake. The IRS treats unsigned returns as invalid, which can delay processing.
How to Avoid It:
- If filing electronically, use the IRS e-signature process.
- If filing a paper return, ensure both you and your spouse (if filing jointly) sign before mailing.
Mistake 7: Not Adjusting Withholding Throughout the Year
Many taxpayers either owe a large amount at tax time or receive an overly large refund, both of which suggest improper withholding from paychecks.
How to Avoid It:
- Use the IRS Tax Withholding Estimator to ensure the correct amount is being withheld.
- Adjust your W-4 form with your employer when life changes occur (marriage, new job, dependents, etc.).
- Aim for a small refund or a balanced return to maximize your monthly income.
Mistake 8: Filing Under the Wrong Status
Choosing the wrong filing status—such as filing as single instead of head of household—can lead to higher taxes or missed deductions.
How to Avoid It:
- Review IRS guidelines for filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er).
- Use tax software that guides you through selecting the correct status.
Mistake 9: Forgetting to Report Cryptocurrency Transactions
The IRS now requires taxpayers to report cryptocurrency transactions, including purchases, sales, and exchanges. Failing to do so can result in penalties or audits.
How to Avoid It:
- Keep a record of all crypto transactions throughout the year.
- Use crypto tax software to calculate gains and losses.
- Answer the IRS virtual currency question on your return accurately.
Mistake 10: Not Keeping Proper Records
Without proper documentation, you may miss deductions or be unable to prove claims if audited.
How to Avoid It:
- Save receipts, bank statements, and records of charitable donations.
- Store tax documents (W-2s, 1099s, mortgage interest statements) in a secure folder.
- Keep records for at least three years, as the IRS can audit returns within that period.
Mistake 11: Ignoring Estimated Tax Payments
Self-employed individuals, freelancers, and small business owners often forget to make quarterly estimated tax payments, leading to penalties.
How to Avoid It:
- Estimate taxes owed each quarter based on income earned.
- Use Form 1040-ES to make payments.
- Set aside a portion of each payment received to cover taxes.
Mistake 12: Not Seeking Professional Help When Needed
While DIY tax filing can work for simple returns, complex situations—such as owning a business, investing, or managing multiple income streams—may require professional expertise.
How to Avoid It:
- Consult a certified public accountant (CPA) or enrolled agent (EA) for complicated returns.
- Use professional tax software with live support options for guidance.
Final Thoughts
Tax mistakes can be costly, but most are easily avoidable with careful planning, good recordkeeping, and the right resources. By double-checking personal information, reporting all income, and taking advantage of deductions and credits, you can file confidently and keep more of your hard-earned money.