3 Common Tax Mistakes That Could Cost You Big

Tax season can feel complicated, and it’s natural to worry about making a mistake. The good news is that by being aware of the most common pitfalls, you can file with confidence. This guide breaks down three of the most frequent errors people make when filing their taxes and provides clear steps to help you avoid them.

Mistake 1: Choosing the Wrong Filing Status

One of the first questions you answer on your tax return is your filing status, but it’s a choice many people get wrong. Your filing status is crucial because it determines your standard deduction, the tax credits you’re eligible for, and your overall tax liability. Selecting the incorrect one can lead to overpaying your taxes or, conversely, underpaying and facing potential penalties from the IRS.

Understanding the Five Filing Statuses

It’s essential to understand the criteria for each status to make the right choice.

Single: This is for individuals who are unmarried, divorced, or legally separated as of the last day of the tax year (December 31).
Married Filing Jointly (MFJ): For married couples who choose to combine their incomes and file one tax return. This status often results in a lower tax bill than filing separately.
Married Filing Separately (MFS): Married couples can choose to file separate returns. While there are specific reasons to do this, such as managing student loan repayments, it usually results in a higher tax liability and disqualifies you from many valuable credits, like the Earned Income Tax Credit and education credits.
Head of Household (HoH): This status offers a higher standard deduction and more favorable tax brackets than the Single status. To qualify, you must be unmarried, have paid for more than half of the household expenses, and have a qualifying child or dependent living with you for more than half the year. This is a commonly overlooked status that could save you a lot of money.
Qualifying Widow(er): This status can be used for two years following the year of a spouse’s death. To qualify, you must have a dependent child, have paid for more than half of the home’s upkeep, and have not remarried.

How to Avoid This Mistake: Don’t just assume your status is the same as last year, especially if you’ve had a major life event like a marriage, divorce, or the birth of a child. The IRS offers a free online tool called the “Interactive Tax Assistant” that can walk you through a series of questions to help you determine the correct filing status for your situation.

Mistake 2: Overlooking Valuable Deductions and Credits

Leaving money on the table is one of the most unfortunate tax filing errors. Many people miss out on deductions and credits simply because they don’t know they exist or assume they don’t qualify. It’s important to remember the key difference: a deduction reduces your taxable income, while a credit directly reduces the amount of tax you owe, making credits particularly valuable.

Common but Often Missed Opportunities

State and Local Tax (SALT) Deduction: You can deduct state and local taxes, including property, income, or sales taxes, up to a combined total of $10,000 per household. Many people forget to include their vehicle registration fees, which can often be partially deductible as personal property tax.
Charitable Contributions: Even if you don’t itemize, you might be able to deduct some cash contributions. If you do itemize, remember that donations are not just cash. You can deduct the fair market value of goods donated to organizations like Goodwill or The Salvation Army. Keep detailed records and receipts for all contributions.
Student Loan Interest Deduction: You can deduct the interest you paid on a qualified student loan, even if you don’t itemize your deductions. You can deduct up to $2,500 of interest paid per year. Your lender should send you Form 1098-E, which reports the amount of interest you paid.
American Opportunity Tax Credit (AOTC): This is a powerful credit for students in their first four years of higher education. It can provide a maximum annual credit of $2,500 per eligible student. A portion of this credit is refundable, meaning you can get money back even if you don’t owe any taxes.
Child and Dependent Care Credit: If you paid for childcare for a child under 13 so you could work or look for work, you might be eligible for this credit. This can include costs for daycare, summer camps, or even a babysitter.

How to Avoid This Mistake: Good record-keeping throughout the year is your best defense. Use tax preparation software like TurboTax or H&R Block, as their interview-style questions are designed to uncover every deduction and credit you might be eligible for. If your financial situation is complex, consider consulting a tax professional.

Mistake 3: Simple Data Entry and Math Errors

In the digital age, it might seem like simple math errors are a thing of the past, but they still happen. More common, however, are simple typos and data entry mistakes that can cause significant delays in processing your return and receiving your refund. The IRS systems are automated to check for matching information, and a single incorrect digit can bring the whole process to a halt.

Key Details to Double-Check

Names and Social Security Numbers (SSNs): The most common error is a mismatch between a name and an SSN. Ensure that the names and SSNs for yourself, your spouse, and any dependents on your tax return match the names and numbers on the Social Security cards exactly.
Bank Account Information: If you’re expecting a refund via direct deposit, one wrong digit in your bank routing or account number can send your money to the wrong account or result in the IRS mailing a paper check, which takes much longer.
Income Figures: Carefully transfer the numbers from your W-2s, 1099s, and other financial documents. A simple transposition of numbers (e.g., typing $4,580 instead of $4,850) can trigger a notice from the IRS.
Basic Calculations: While tax software handles most of the math, if you are filling out forms manually, use a calculator and check your work. Simple addition or subtraction errors are surprisingly common.

How to Avoid This Mistake: The solution is simple but crucial: review your return carefully before you file. Read through every line. Check every number. Ask your spouse or a trusted friend to look it over as well. If you use a tax preparer, be sure to review the final return they prepare for you before they submit it. Filing electronically through reputable software significantly reduces the risk of math errors, but it won’t catch a typo in your SSN or bank account number.

Frequently Asked Questions

What should I do if I find a mistake after I’ve already filed my return? If you discover an error after filing, you can correct it by filing an amended return using Form 1040-X, Amended U.S. Individual Income Tax Return. You generally have three years from the date you filed your original return to file a 1040-X to claim a credit or refund.

Is it better to use tax software or hire an accountant? This depends on the complexity of your financial situation. Tax software is a great, cost-effective option for people with straightforward returns (like W-2 income and standard deductions). If you are self-employed, own a business, have investment properties, or experienced a major financial event, the expertise of a Certified Public Accountant (CPA) or other qualified tax professional can be invaluable.

How long do I need to keep my tax records? The IRS advises keeping copies of your tax returns and supporting documents for at least three years from the date you filed. This is the typical period during which the IRS can audit your return. However, it’s wise to keep records related to property (like a home or stocks) for as long as you own the asset plus three years after you sell it.