Don’t Let Tax Errors Drain Your Wallet
Every year, taxpayers lose thousands of dollars due to avoidable tax mistakes. From missing deductions to filing errors, these missteps can delay your refund, increase your tax bill, or even trigger an IRS audit.
The good news? Most tax mistakes are easily preventable if you know what to watch out for.
In this guide, we’ll highlight the most common tax filing mistakes and show you how to avoid costly errors that could impact your refund.
1. Filing Late & Missing Deadlines
🚨 Mistake: Missing the April 15, 2025 tax deadline, leading to IRS penalties and interest.
✅ How to Avoid It:
✔ Mark your calendar with key IRS deadlines.
✔ File early to avoid last-minute stress.
✔ If you need more time, file for a tax extension (Form 4868)—but remember, an extension only gives you more time to file, not to pay.
💡 Tip: If you owe taxes, pay at least part of the amount due to reduce penalties and interest.
2. Choosing the Wrong Filing Status
🚨 Mistake: Filing under the wrong tax status (Single, Married Filing Jointly, Head of Household), which can affect your tax rate and refund.
✅ How to Avoid It:
✔ Use the IRS filing status tool to determine the best option.
✔ If you qualify as Head of Household, claim it—it has lower tax rates and a higher standard deduction.
✔ Married couples should compare Married Filing Jointly vs. Married Filing Separately to see which option gives the lowest tax bill.
💡 Tip: If you’re recently divorced or widowed, check how your filing status impacts your taxes.
3. Forgetting to Report All Income
🚨 Mistake: Not reporting freelance work, gig income, stock sales, or other earnings, which can trigger an IRS audit.
✅ How to Avoid It:
✔ Report all 1099 income, including freelancing, gig work (Uber, DoorDash), and investment gains.
✔ Keep track of side hustles and part-time jobs—the IRS receives copies of your 1099-K, 1099-NEC, and 1099-DIV forms.
✔ If you receive rental income, report it accurately on Schedule E.
💡 Tip: The IRS matches your tax return with income statements from employers, banks, and brokerages—don’t risk underreporting.
4. Missing Out on Tax Deductions
🚨 Mistake: Not claiming deductions you qualify for, leading to a higher tax bill.
✅ How to Avoid It:
✔ Take the standard deduction if you don’t have enough expenses to itemize:
- Single: $15,200
- Married Filing Jointly: $30,400
- Head of Household: $22,650
✔ If your mortgage interest, medical expenses, or charitable donations exceed the standard deduction, itemize for a bigger refund.
✔ Commonly overlooked deductions: - Home Office Deduction (for self-employed workers).
- Student Loan Interest Deduction (up to $2,500).
- Medical Expenses (if costs exceed 7.5% of your AGI).
💡 Tip: Many taxpayers forget to deduct work-from-home expenses—if eligible, don’t miss out!
5. Overlooking Tax Credits That Increase Refunds
🚨 Mistake: Not claiming tax credits that directly reduce your tax bill—sometimes even leading to a bigger refund.
✅ How to Avoid It:
✔ Earned Income Tax Credit (EITC): Worth up to $7,430 for low-to-moderate income workers.
✔ Child Tax Credit (CTC): Up to $2,000 per child (partially refundable).
✔ American Opportunity Credit: Up to $2,500 for college tuition.
✔ Saver’s Credit: Tax break for contributing to a 401(k) or IRA.
💡 Tip: Tax credits are more valuable than deductions because they reduce your tax dollar-for-dollar.
6. Not Contributing to a Retirement Plan
🚨 Mistake: Missing out on 401(k) or IRA contributions, which reduce taxable income and grow tax-free.
✅ How to Avoid It:
✔ Contribute to a 401(k): The 2025 contribution limit is $23,000 ($30,500 if age 50+).
✔ Open or max out an IRA: Deduct up to $7,000 ($8,000 if 50+).
✔ Self-employed? Consider a SEP IRA or Solo 401(k) to save even more.
💡 Tip: Contributions made by April 15, 2025 can still reduce your 2024 taxable income!
7. Incorrectly Calculating Capital Gains & Losses
🚨 Mistake: Not reporting stock sales or cryptocurrency trades correctly, leading to IRS penalties.
✅ How to Avoid It:
✔ Report all capital gains and losses on Schedule D.
✔ Short-term gains (stocks held < 1 year) are taxed at higher rates than long-term gains—hold investments for over a year to qualify for lower tax rates.
✔ Offset gains with losses (Tax-Loss Harvesting) to reduce your taxable income.
💡 Tip: The IRS is cracking down on cryptocurrency transactions—report any gains or losses on Form 8949.
8. Entering Incorrect Direct Deposit Information
🚨 Mistake: Providing the wrong bank account number, causing refund delays or lost money.
✅ How to Avoid It:
✔ Double-check your account and routing number before submitting your return.
✔ Choose direct deposit for the fastest tax refund (within 21 days).
💡 Tip: Use IRS.gov’s “Where’s My Refund?” tool to track your refund status.
9. Not Keeping Tax Records & Receipts
🚨 Mistake: Failing to keep important tax documents, leading to problems if audited by the IRS.
✅ How to Avoid It:
✔ Keep tax records for at least 3 years (7 years if you claimed losses).
✔ Store W-2s, 1099s, receipts, and tax returns securely.
✔ Use a cloud-based app or tax software for easy document tracking.
💡 Tip: If you’re self-employed, keep track of business expenses year-round to avoid scrambling at tax time.
10. Failing to File If You Owe Taxes
🚨 Mistake: Avoiding tax filing because you can’t afford to pay—leading to IRS penalties and interest.
✅ How to Avoid It:
✔ File on time, even if you can’t pay in full—this avoids the “Failure to File” penalty (5% per month).
✔ Set up an IRS payment plan to pay in installments.
✔ Consider an Offer in Compromise if you can’t afford your tax debt.
💡 Tip: The IRS is more flexible than you think—never skip filing, even if you owe.
File Smart & Avoid Costly Mistakes
Making even one tax mistake can delay your refund or trigger IRS penalties. By filing early, checking deductions, and ensuring accuracy, you can keep more money in your pocket.
📌 Need expert help? Contact First Union Tax for professional tax filing, refund maximization, and IRS assistance!
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