Common Tax Mistakes and How to Avoid Them

Jenny Handwerk |

Common Tax Mistakes and How to Avoid Them 

Filing season can be difficult for many Americans; between navigating multiple forms and gathering all of the necessary information, tax season can quickly become overwhelming.
The more money you earn, the greater your tax liability may be. Make sure your submission is correct to avoid higher fees and fines. 

You could miss out on a larger refund than you claimed, owe more taxes—plus interest and penalties—or face an Internal Revenue Service (IRS) audit. The best defense against these outcomes is a good offense: prevent mistakes on your return.

So here is a list of the most common tax mistakes: 

Missing Deadlines

Ultimately, some individuals will be unable to file their taxes in April. Perhaps they don't have all of their documentation, haven't funded their plans, or have procrastinated. That is fine if you file for an extension. You will face significant fines if you do not file your taxes or request an extension. 

If you file a week late, the IRS will impose a 5% penalty on your unpaid taxes. If you file and pay your taxes five months after the due date, you will owe a 25% penalty plus interest.

Your return is incomplete.

There is no single event that automatically prompts an audit, but mismatched documentation is the most prevalent reason for receiving an IRS notice.

It can be as simple as a missing form, frequently occurring when individuals scurry around at the last minute. The federal government provides a range of credits, including the child tax credit, which allows parents to claim up to $2,000 for each qualified kid. You must demonstrate that you are appropriately qualified for these benefits.

If you claimed no child tax credit last year and claim three children who are not newborns this year, the IRS will send you a letter.

You do not submit information already reported to you (and the IRS).

Wages, dividends, bank interest, and other income reported on an information return should be entered accurately. These forms have also been reported and the government's computers are looking for information that matches. If you need to dispute what has been reported, contact the company that made the payment (for example, your employer) and ask for a corrected form. 


You're self-employed and don't report deductions accurately.

If you are an independent contractor, you should feel free to deduct reasonable business expenditures. Just be sure you have supporting documents and receipts.

In order to qualify for the home office deduction, the area must be routinely and only utilized for your profession or business. If you plan to claim transportation costs, you will need to provide proof of the mileage you drive for work. Claiming your personal vehicle's whole cost as a work expense will raise suspicions.


Rounding And Math Errors

You may be able to use tools to help you find math issues depending on how you file your taxes. Make sure to double-check your calculations whether you are using a calculator or doing them by hand.

We advise against rounding figures in any way while performing calculations, such as itemized deductions. Perfectly rounded numbers may raise red flags for the IRS and lead to an audit since they may look inaccurate.

You don't enter items on the correct line.

Verify that the entries on your tax forms show where you intend them to. Remember to enter your tax-free IRA rollover on the line intended for withdrawals from taxable IRAs. This problem should be avoided if you use tax software, but before submitting, ensure everything appears where it should.

Your charitable deductions are outsized.

If you itemize your deductions, you can also be able to deduct monetary contributions to approved organizations and the value of donated clothing, appliances, and other items. Given your income, the IRS notifies you if these donations appear excessive.

The Discriminant Information Function system, an agency computer program, constantly examines returns for these irregularities.

Final Notes

Tax errors can be expensive, resulting in penalties, interest, and missed opportunities to take advantage of tax benefits. Every tax scenario is unique. Thus, what constitutes a grave error for certain taxpayers might not even cross your mind. But some errors are more frequent than others. You can use this list of frequently made and incredibly costly tax mistakes as a reference to help you avoid