Common Tax Mistakes That Cost You Money

Introduction

Filing taxes incorrectly can lead to missed deductions, penalties, and overpaying the IRS. Whether you’re an individual taxpayer, freelancer, or small business owner, avoiding common tax mistakes can help you save money and stay compliant.

This guide highlights the most common tax filing errors, how to fix them, and steps to ensure an accurate tax return.

Common Tax Filing Mistakes and How to Avoid Them

1.1 Filing Late or Missing the Deadline (IRC §6651)

• The IRS charges a penalty of 5% per month on unpaid taxes for late filing.
• The deadline for 2025 tax returns is April 15, 2025.

Action Step:

• If you need more time, file Form 4868 to get a six-month extension (until October 15, 2025).
• If you owe taxes, pay at least part of the balance to reduce penalties.

1.2 Incorrect Social Security Numbers (IRC §6109)

• A wrong SSN can cause delays, rejected returns, or loss of tax credits.

Action Step:

• Double-check SSNs for yourself, spouse, and dependents before submitting your return.

1.3 Underreporting Income (IRC §6721 & §6722)

• The IRS automatically matches W-2s, 1099-NEC, and 1099-K to your tax return.
• Failing to report freelance income, side gigs, or digital transactions may trigger an audit.

Action Step:

• Use IRS Form 1099-NEC or Form 1099-K for self-employment income.
• Report all cash, digital, and investment earnings.

1.4 Overstating or Misreporting Deductions (IRC §162)

• Claiming inflated deductions can lead to IRS audits.
• The IRS may disallow deductions that lack proof.

Action Step:

• Keep receipts, invoices, and financial records for all claimed deductions.
• Use Form 8829 for home office deductions and Form 4562 for business asset depreciation.

1.5 Claiming the Wrong Filing Status (IRC §7703)

• Filing under the wrong status (e.g., “Single” instead of “Head of Household”) can reduce your deductions and credits.

Action Step:

• Use the IRS Filing Status Tool to determine the correct status.
• “Head of Household” often provides better tax benefits for single parents.

1.6 Not Taking Advantage of Retirement Contributions (IRC §401 & §408)

• Missing out on 401(k) and IRA contributions means paying more in taxes.

Action Step:

• Contribute up to $24,000 (401(k)) or $7,500 (IRA) in 2025 to reduce taxable income.

1.7 Ignoring Earned Income Tax Credit (EITC) (IRC §32)

• Millions of taxpayers miss out on this valuable credit.
• The EITC is available for low-to-moderate-income workers with or without children.

Action Step:

• Use IRS Form 1040, Schedule EIC to claim the credit if eligible.

1.8 Forgetting to Report Cryptocurrency Transactions (IRC §6050I)

• The IRS now requires reporting of all crypto sales, trades, and earnings.
• Failing to report crypto gains can lead to penalties and audits.

Action Step:

• Use Form 8949 and Schedule D to report capital gains/losses on crypto.

1.9 Overlooking Self-Employment Tax (IRC §1401)

• Freelancers and gig workers must pay 15.3% in self-employment taxes.
• Failure to pay estimated taxes quarterly can lead to penalties.

Action Step:

• Use Form 1040-ES to make quarterly tax payments.

1.10 Not Keeping Tax Records for At Least 3 Years (IRC §6501)

• The IRS can audit tax returns up to three years after filing.
• If fraud is suspected, the IRS may review up to six years of tax records.

Action Step:

• Keep W-2s, 1099s, and deduction receipts for at least three years.

How to Fix Tax Mistakes After Filing

Option 1: File an Amended Return (Form 1040-X)

• If you forgot income, missed deductions, or made an error, file Form 1040-X.
• You have three years from the original due date to correct a mistake.

Option 2: Pay Your Tax Bill ASAP

• If you underpaid taxes, submit payment via IRS Direct Pay to reduce penalties and interest.

Option 3: Set Up an IRS Payment Plan

• If you can’t afford to pay in full, apply for an IRS installment agreement (Form 9465).

Conclusion

Avoiding common tax mistakes helps you save money, reduce IRS scrutiny, and prevent penalties. Always double-check tax forms, report all income, and maximize deductions legally.

For professional tax filing assistance, schedule a meeting with our CPA Anshul Goyal by clicking at https://calendly.com/anshulcpa/ now.

About Our CPA

Anshul Goyal, CPA, EA, FCA, is a licensed Certified Public Accountant in the United States and an Enrolled Agent admitted to practice before the IRS. He specializes in IRS compliance, tax audits, and tax planning for individuals and businesses.

Disclaimer

This article is for informational purposes only and should not be considered legal or tax advice. Tax laws change frequently, and every individual’s financial situation is unique. It is recommended that you consult with a qualified CPA or tax professional before making any tax-related decisions.