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Common Tax Mistakes That Could Cost You Money

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Filing your taxes can be overwhelming, and even a small mistake can cost you money. Whether you’re rushing to meet the deadline or filing for the first time, avoiding common tax errors can save you from penalties, missed deductions, and IRS scrutiny. Here are some of the biggest tax mistakes to watch out for and how to avoid 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.

Final Thoughts

Avoiding these common tax mistakes can help you maximize refunds, prevent penalties, and reduce stress. If you're unsure about your tax return, consider using tax software or working with a professional tax preparer to ensure accuracy.

For more tax tips and tools, check out our tax calculator to estimate your tax liability and potential refund.