Steer clear of these errors to save money and avoid penalties
Reviewed by Lea D. UraduFact checked by Kirsten Rohrs SchmittReviewed by Lea D. UraduFact checked by Kirsten Rohrs Schmitt
Making mistakes on your tax return can cost you money. You may miss out on a larger refund than you claimed or wind up owing more taxes plus interest and penalties. You could invite an audit from the Internal Revenue Service (IRS). The best defense against results like these is a good offense: Avoid errors on your return.
Key Takeaways
- Make sure that your basic information such as your name, Social Security number, and filing status is correct and that financial information is reported on the correct lines.
- Report your financial information exactly as it’s been reported to the Internal Revenue Service (IRS) on forms such as the W-2, 1099, and K-1.
- Check to find out if taking the standard deduction is better for you financially than itemizing your deductions.
- Take every write-off to which you’re legitimately entitled.
- Tell the IRS how you want to receive your refund or be sure to pay your bill correctly if you owe taxes so the payment is properly credited to you.
Common Tax Filing Mistakes
Tax laws are complex. U.S. tax statutes and IRS regulations included more than 10 million words as of 2015, according to the Tax Foundation. The mistakes that taxpayers make on their returns tend to be fairly simple, however, even though the rules are complicated. Here are 10 of the most common and what you can do to avoid them.
1. You Blow the Basics
Confirm that your name and those of your dependents are spelled correctly and that Social Security numbers are correct. And be sure to select the correct filing status for your situation.
You could file as single if you’re unmarried but you may qualify for more favorable tax rates and other tax perks if you meet the requirements to qualify as head of household or qualifying widow(er) with a dependent child. And married couples may pay less tax overall in some cases if they file separately rather than jointly.
Important
The Interactive Tax Assistant on IRS.gov can help you choose the correct status if more than one filing status applies to you.
2. You Don’t Enter Information As It’s Been Reported
Wages, dividends, bank interest, and other income you earned that was reported on an information return such as a W-2, 1099, or K-1 should be entered carefully. These forms have also been submitted to the IRS and the government’s computers are looking for this information to match.
Contact the business that made the payment to you, such as your employer, and request a corrected form if you have to dispute what’s been reported. You can call the IRS at (800) 829-1040 to initiate a Form W-2 complaint if you don’t receive a corrected form by the end of February.
3. You Don’t Enter Items on the Correct Lines
Make sure your entries appear in the correct places when you enter them on your tax forms. Don’t put your tax-free IRA rollover on the line meant for taxable IRA distributions. Using tax software should help prevent this issue but always double check where items appear on your final return before clicking the submit button.
4. You Automatically Take the Standard Deduction
Itemizing requires more effort, receipts, and other proof than relying on the standard deduction but you could lose money by automatically taking the standard deduction. Check which alternative gives you the greater write-off. It will depend on the total of the itemized deductions you qualify for. Is it more than the standard deduction you’re entitled to claim for your filing status?
The standard deductions nearly doubled beginning in 2018 under the Tax Cuts and Jobs Act (TCJA) so itemizing is less likely to save you money, at least through 2025. The TCJA is set to expire at the end of 2025 and standard deductions are slated to fall back to their old levels beginning in 2026 unless Congress intervenes.
It never hurts to run the numbers both ways in any case. Most tax software automatically calculates which method is most beneficial for you.
5. You Don’t Take Write-Offs You’re Entitled to Take
Some may fear that a specific deduction is an audit red flag so they shy away from it. There continues to be a belief that claiming a home office deduction can trigger a tax audit. This probably isn’t true given that the IRS created a simplified deduction alternative to writing off these expenses.
It’s wise to take the deduction if you meet its tax law requirements. Most employees can’t claim it, however. You must be an independent contractor and self-employed or qualify for one of the few other exceptions. Employees generally can’t deduct unreimbursed home office expenses as a miscellaneous itemized deduction on Schedule A.
6. You Forgot Your State Healthcare Individual Mandate
The Affordable Care Act (ACA) individual mandate required that you pay a penalty fee for every month that you and/or your family lacked qualifying health coverage but it was eliminated in 2019. Some states have their own health insurance mandates, however, so be sure you know what your state requires.
Five states and the District of Columbia have health insurance mandates as of the 2024 tax year:
- California
- District of Columbia
- Massachusetts
- New Jersey
- Rhode Island
- Vermont
7. You Don’t Check for Typos
It’s easy to transpose a number or leave out a digit and this is a mistake that can distort the information you’re reporting. Say you contributed $5,200 to your individual retirement account (IRA) but you inadvertently entered $2,500 as the deduction on your return. You’ve cheated yourself out of a $2,700 deduction that will cost you $648 more in taxes if you’re in the 24% tax bracket.
Warning
Always check the IRS instructions as to whether to use parentheses instead of a minus sign to indicate a negative number.
8. You Make Math Mistakes
Math errors are among the most common tax filing mistakes, according to the IRS. They can range from basic addition and subtraction to more complex calculations. Always double-check your math or use tax preparation software that does the math for you.
Check the IRS instructions if you have to enter a negative number. Some forms prefer parentheses but others use the minus symbol. This ensures that IRS computers read the negative entry correctly. Enter a loss of $500 on your return as ($500) and not -$500 if ($500) is required.
9. You Don’t Tell the IRS How to Handle Your Refund
Be proactive about what you want the government to do with your refund if you overpaid your taxes and you’re due a refund. The U.S. Treasury will send you a paper check through the mail if you don’t do anything.
Add your bank account information including your account number and the routing number to get your refund much faster. The refund will be deposited directly into your account. You can opt to split your refund into as many as three accounts or use it toward next year’s estimated taxes, as contributions to various retirement accounts, or to buy U.S. Treasury marketable securities. The instructions for Form 8888 explain your options.
10. You Make Payment Mistakes
Make sure that your payment is correctly credited to you if you owe taxes. Include Form 1040-V with your check whether filing electronically or a paper return. You can pay through the government’s free payment sites, EFTPS.gov or Direct Pay, or by credit or debit card through an IRS-approved payment provider.
You can amend your return using Form 1040-X, the Amended U.S. Individual Income Tax Return, if you made an error on it.
How Long Should I Keep My Tax Returns?
The Internal Revenue Service (IRS) recommends holding on to your tax returns and supporting documents for at least three years and up to seven years in certain situations.
You should keep your records for seven years if you file a claim for a loss from worthless securities or bad debt deduction. Keep your records for six years if there’s a chance that you didn’t report income that you should have and it’s more than 25% of the gross income shown on your return. Keep your records indefinitely if you don’t file a return or you file a fraudulent return.
What Are Some Common Tax Filing Mistakes?
Some of the most common mistakes are missing or inaccurate Social Security numbers, misspelled names, choosing the wrong filing status, math mistakes, and unsigned forms. “An unsigned tax return isn’t valid…period,” according to the IRS.
Should I Claim the Standard Deduction or Itemize?
You have the option to take the standard deduction or itemize your deductions when you file your tax return but you can’t do both. It makes financial sense to itemize if the total value of the expenses you can itemize is greater than the standard deduction you qualify for based on your filing status.
What Are the Standard Deduction Amounts for 2024 and 2025?
The 2024 standard deductions are $14,600 for single and married filing separately taxpayers, $21,900 for heads of households, and $29,200 for married filing jointly taxpayers and surviving spouses. These deductions are adjusted for inflation so they increase in 2025: $15,000 for single and married filing separately taxpayers, $22,500 for heads of households, and $30,000 for married filing jointly taxpayers and surviving spouses.
The Bottom Line
Always be sure to sign your tax return. It’s not valid unless you’ve signed. Keep a copy of your signed return along with proof of filing such as an acknowledgment that your e-filed return has been accepted by the IRS or a certified receipt for a paper return sent by mail.
Having this proof helps protect you from any IRS claims that you filed late or not at all. Your past tax returns will also come in handy when you file future tax returns or if you have to file an amended return.
Read the original article on Investopedia.