Avoiding common tax filing errors is essential to ensure accuracy and compliance with IRS regulations, which can help you avoid audits, penalties, and interest. Here are some tips to help you steer clear of the most frequent mistakes:
Report All Income
Include all forms of income, even if you don’t receive a W-2 or 1099. Common errors occur when taxpayers forget to report freelance or gig work, investment income, rental income, or
Keep track of all income streams throughout the year, including self-employment and side jobs. Cross-check your records with income documents (W-2s, 1099s, etc.).
File the Correct Filing Status
Choosing the wrong filing status—such as selecting “single” when you qualify for “head of household”—can lead to incorrect tax calculations. Review the IRS filing status rules and select the appropriate one based on your situation.
Claim Accurate Deductions and Credits
Overstating deductions or credits, such as the Earned Income Tax Credit (EITC), can trigger IRS scrutiny. Errors also happen when claiming deductions you’re not entitled to or failing to claim credits for which you qualify.
Ensure you understand the eligibility rules for all credits and deductions you claim. Keep documentation such as receipts for charitable donations, medical expenses, or business deductions.
Check Your Math and Avoid Typos
Simple math errors or typos in Social Security numbers, income, or deduction amounts can cause delays and IRS notices. Double-check all figures and use tax software or a professional tax preparer, as they can automatically calculate and validate entries to avoid math mistakes.
Use the Correct Forms
Filing the wrong tax form can result in mistakes and delays. Review your tax situation and choose the correct form (1040, 1040-SR, etc.). If you need to claim itemized deductions or additional credits, ensure you’re using the appropriate forms and supporting documentation.
File on Time or Request an Extension
Failing to file your return on time or missing the deadline for payment can result in penalties and interest. File your tax return by the deadline (usually April 15). If you need more time, request a six-month extension with Form 4868, but remember that this doesn’t extend the deadline to pay any taxes owed.
Double-Check Dependents
Claiming dependents incorrectly—such as both parents claiming the same child—can lead to audits or rejected returns. Verify that the child meets all eligibility requirements. Ensure dependents meet the IRS requirements and that no one else is claiming them. This is especially important for divorced or separated parents.
Avoid Misreporting Business Expenses
Misreporting or overstating business expenses, such as deducting personal expenses as business expenses, can raise red flags. Only deduct legitimate business expenses that are ordinary and necessary for your trade or profession. Keep detailed records and receipts for all business-related costs.
Report Cryptocurrency Transactions
Failing to report cryptocurrency transactions, such as trading or selling digital assets, can lead to penalties. The IRS treats cryptocurrency as property, meaning gains or losses must be reported.
Accurately track and report all cryptocurrency transactions. Use IRS Form 8949 to report capital gains and losses from digital assets.
Don’t Forget Estimated Tax Payments
If you’re self-employed or have other income not subject to withholding (like investment or rental income), forgetting to make quarterly estimated tax payments can lead to penalties. Calculate your estimated tax payments using Form 1040-ES and submit quarterly payments to avoid underpayment penalties.
By being diligent, organized, and thorough, you can avoid these common tax filing errors and reduce the likelihood of audits, penalties, or delays in receiving your tax refund.
