8 Tax Mistakes Costing Americans Thousands Every Year (And How to Avoid Them)
Last year, the IRS processed over 160 million individual tax returns. Millions of those filers overpaid, claimed deductions incorrectly, or triggered audits—all due to preventable mistakes.
A single error can cost you hundreds or thousands of dollars. Maybe you forgot to report freelance income. Maybe you missed a valuable tax credit. Or maybe you just checked the wrong filing status.
The good news? Most tax mistakes are easy to avoid once you know what to look for. Here are the eight most common tax errors and exactly how to prevent them.
1. Filing Too Late or Not Filing at All
Missing the tax deadline can result in costly penalties. The IRS typically requires individuals to file by April 15, and failing to do so can lead to a Failure-to-File penalty, which can be 5% of unpaid taxes per month, up to 25% of the total tax due.
How to Avoid This Mistake:
- File on time, even if you can’t pay the full amount—you can set up a payment plan with the IRS.
- Request a tax extension if needed, but remember that an extension only gives you more time to file, not to pay.
2. Entering Incorrect Personal Information
One of the simplest yet most common mistakes is entering incorrect Social Security numbers, names, or bank details. Even a small typo can delay processing and refunds.
How to Avoid This Mistake:
- Double-check all personal details before submitting your return.
- Ensure your name matches exactly as it appears on your Social Security card.
3. Forgetting to Report All Income
Many taxpayers forget to report freelance work, side gigs, or investment income, especially if they don’t receive a 1099 form. The IRS receives copies of all W-2s and 1099s, and failing to report income can trigger an audit or penalties.
How to Avoid This Mistake:
- Keep records of all income sources, including side hustles and gig work.
- If you didn’t receive a 1099, but you earned more than $600 from a client, you are still required to report it.
4. Overlooking Valuable Tax Deductions and Credits
Many taxpayers miss out on money-saving deductions and credits, such as:
✅ Student loan interest deduction
✅ Retirement account contributions (IRA, 401(k))
✅ Home office deduction (for self-employed individuals)
✅ Education credits (American Opportunity Credit, Lifetime Learning Credit)
How to Avoid This Mistake:
- Review your eligibility for deductions and credits before filing.
- Use tax software or consult a professional to ensure you maximize savings.
5. Incorrectly Claiming Dependents
Claiming a dependent incorrectly—such as a child who has already been claimed by another parent—can cause IRS issues and delays.
How to Avoid This Mistake:
- Ensure you meet all IRS guidelines for claiming dependents.
- If multiple taxpayers qualify to claim a dependent (e.g., divorced parents), decide who will claim them before filing.
6. Failing to Sign and Date the Return
Believe it or not, some tax returns are rejected simply because they are missing a signature.
How to Avoid This Mistake:
- If filing electronically, ensure you e-sign the return.
- If filing by mail, sign and date the physical copy before submitting it.
7. Using the Wrong Filing Status
Choosing the wrong filing status (Single, Married Filing Jointly, Head of Household, etc.) can impact tax rates and deductions.
How to Avoid This Mistake:
- Use the IRS filing status tool or consult a tax professional to determine the correct status.
8. Not Keeping Proper Tax Records
If the IRS ever audits you, you’ll need to provide supporting documents. Not keeping receipts, W-2s, 1099s, or other records can cause issues.
How to Avoid This Mistake:
- Store tax documents for at least three years (or longer if needed).
- Keep both digital and physical copies of important financial records.
Bonus Mistake: Not Using Tax-Advantaged Accounts
Many taxpayers miss out on thousands in tax savings by not maximizing:
401(k) contributions: Up to $22,500 pre-tax (2023) reduces your taxable income dollar-for-dollar
HSA contributions: Triple tax advantage—deductible contributions, tax-free growth, tax-free withdrawals for medical expenses
IRA contributions: Up to $6,500 (traditional IRA offers tax deduction)
Example: Contributing $10,000 to a traditional 401(k) in the 24% tax bracket saves $2,400 immediately.
Learn more about maximizing retirement contributions
Tools to Prevent Tax Mistakes
Before you file:
- Use our 2026 Tax Filing Checklist to avoid missing forms and deadlines
- Use our federal tax calculator to estimate your liability and catch errors before submitting
- Review all income documents: W-2s, 1099s, investment statements
- Check filing status eligibility: Use the IRS tool to confirm
- Run the numbers twice: Mistakes happen when rushing
Tax software recommendations:
- TurboTax, H&R Block, or FreeTaxUSA for guided filing
- Built-in error checking catches common mistakes
- Import W-2s directly to avoid typos
When to hire a professional:
- Complex situations (rental property, business income, stock trading)
- First year after major life changes (marriage, divorce, home purchase)
- You've been audited before
- You're not confident in DIY filing
Final Thoughts
Avoiding these eight tax mistakes can save you hundreds or thousands of dollars while reducing audit risk and stress. Tax season doesn't have to be painful—just slow down, double-check everything, and use the right tools.
Quick recap of mistakes to avoid:
- ✅ File on time (or request extension)
- ✅ Triple-check SSNs and personal info
- ✅ Report all income (even without 1099s)
- ✅ Claim all eligible deductions and credits
- ✅ Verify dependent claims
- ✅ Sign and date your return
- ✅ Use correct filing status
- ✅ Keep records for 3+ years
For more tax guidance, explore these resources:
- How Federal Income Tax Works - Understand tax brackets and the progressive system
- 4 Types of Federal Taxes - Beyond just income tax
- Federal Tax Calculator - Estimate your tax liability and refund
Don't let simple mistakes cost you money. Take your time, use the right tools, and keep more of what you earn.