What Are the Most Common Tax Mistakes?

Filing taxes can be a complex annual task, and certain mistakes are common. Understanding these pitfalls can help you file an accurate tax return and prevent potential issues with the IRS.

Errors in Personal and Filing Details

One of the most fundamental areas for mistakes is personal and filing information. Your filing status determines your standard deduction, tax brackets, and eligibility for certain benefits. An incorrect choice among the five statuses—Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er)—can cause you to overpay taxes or miss out on credits.

Confusion often arises with the Head of Household status. To qualify, you must be unmarried, pay for more than half of household expenses, and have a qualifying child or dependent live with you for more than half the year. An error occurs when separated individuals who are not yet legally divorced attempt to claim this status without meeting the specific rules for being “considered unmarried” for tax purposes.

Mistakes in reporting dependent information are also prevalent. For divorced or separated parents, only one parent can claim a child as a dependent. The custodial parent, with whom the child lived for more nights, has this right but can release the claim to the noncustodial parent by signing Form 8332. Without this form, a noncustodial parent’s claim is invalid.

Claiming a qualifying relative or an older child, like a college student, can also be difficult. A student who provides more than half of their own financial support cannot be claimed as a dependent by their parents. Similarly, claiming a relative requires that you provided more than half of that person’s total support for the year.

Simple clerical errors are a leading cause of tax return rejections. Every Social Security Number (SSN) and name for the taxpayer, spouse, and all dependents must exactly match Social Security records. Any mismatch, such as a misspelled name or transposed SSN digit, will likely cause an electronic return to be rejected, delaying any refund.

Mistakes in Reporting Income

A significant category of errors involves incorrectly reporting income. A foundational principle of the U.S. tax system is that all income is taxable unless the law excludes it. A common mistake is assuming that if you do not receive a tax form like a W-2 or Form 1099, the income is not reportable, which can lead to underpayment and penalties.

The gig economy has created new complexities. Individuals earning money from freelancing or online platforms must report this income, often detailed on Form 1099-NEC. For transactions on payment apps or online marketplaces, you may receive a Form 1099-K, which for the 2024 tax year is only required if gross payments exceed $5,000. A mistake is believing that income below this threshold is not taxable.

Investment income is another area where omissions are frequent. Taxpayers may forget to report interest from savings accounts (Form 1099-INT) or dividends from stocks (Form 1099-DIV). When selling assets like stocks or cryptocurrency, the transaction must be reported on Form 8949, even if it results in a loss. A frequent error is failing to track the asset’s cost basis, which is needed to calculate the taxable gain or deductible loss.

Other types of miscellaneous income are often overlooked. Forgetting to report the following taxable sources is a common error:

• Winnings from gambling
• Jury duty pay
• Unemployment compensation
• Certain types of forgiven debt, reported on Form 1099-C

Gambling losses can be deducted up to the amount of your winnings, but only if you itemize deductions.

Miscalculating Deductions and Credits

Errors related to deductions and credits can significantly impact your tax liability. A primary decision is whether to take the standard deduction or to itemize. A common mistake is not comparing the two options, as taxpayers may miss a larger tax benefit if their itemized expenses exceed their standard deduction amount.

The home office deduction is prone to errors due to its strict requirements. To qualify, a portion of the home must be used “regularly and exclusively” for business, meaning the space cannot have personal uses. Deducting a desk in a family room used for recreation would be improper, and misclaiming this deduction is a frequent audit trigger.

Record-keeping for charitable contributions is another area for mistakes. For any single contribution of $250 or more, you must have a written acknowledgment from the charity before filing. When donating property, taxpayers sometimes overvalue items; for non-cash donations over $500, Form 8283 must be filed, and for items over $5,000, a qualified appraisal is required.

For self-employed individuals, distinguishing between business and personal expenses is a challenge. An error is deducting expenses that are not “ordinary and necessary” for the business, such as the cost of commuting from home to a primary workplace. Mixing funds can lead to inaccurate deductions and poor records if the IRS requests substantiation.

Taxpayers also frequently overlook valuable tax credits. Common examples include:

• The American Opportunity Tax Credit for higher education costs.
• The Child and Dependent Care Credit for work-related care expenses.
• The Earned Income Tax Credit (EITC), which has complex rules that lead to a high rate of errors.

Many eligible taxpayers either fail to claim these credits or claim them incorrectly.

Procedural and Calculation Blunders

Procedural and calculation mistakes can also disrupt the filing process. While tax software has reduced mathematical errors, they still occur. Simple transposition errors when entering information from a W-2 or 1099 can alter income or withholding amounts, leading to an incorrect tax calculation and potential IRS notices.

Providing incorrect bank account information for direct deposit is a consequential mistake. Taxpayers expecting a refund who enter an inaccurate routing or account number will face significant delays. The refund may be rejected by the bank and sent back to the IRS, which then must issue a paper check.

Failing to meet tax deadlines has direct financial consequences. The deadline to file is typically April 15, and missing it without an extension can result in a failure-to-file penalty of 5% of the unpaid tax per month, up to 25%. This is much higher than the failure-to-pay penalty, so it is always advisable to file on time, even if you cannot pay the full amount owed.