Taxes can be complicated, and even the most responsible taxpayers can make mistakes that result in penalties, missed deductions, or paying more than they owe. At Shammas Tax, we see common errors year after year that could be avoided with the right planning and attention to detail. Whether you’re an individual taxpayer, self-employed, or a small business owner, understanding these common tax mistakes can help you avoid unnecessary financial setbacks.
Here are five common tax mistakes that could cost you money and how you can avoid them.
1. Filing Late or Missing Deadlines
One of the biggest mistakes taxpayers make is waiting until the last minute to file their tax return. The IRS has strict deadlines, and missing them can lead to penalties and interest on any unpaid taxes.
- The deadline for most individuals to file their taxes is April 15. If you don’t file on time and owe taxes, you could face a Failure to File penalty, which accrues interest until your return is submitted.
- If you owe taxes and don’t pay by the deadline, you may also incur a Failure to Pay penalty, which increases the longer you delay payment.
How to Avoid This Mistake
- Mark important tax deadlines on your calendar and set reminders.
- If you need more time, file for an extension by April 15, which gives you until October 15 to submit your return. Keep in mind that an extension only extends the filing deadline, not the payment deadline—you’ll still need to estimate and pay any taxes owed by April 15 to avoid penalties.
- Stay organized throughout the year to make tax season easier. Keep financial records, W-2s, 1099s, and deduction receipts in one place to avoid last-minute scrambling.
2. Not Keeping Track of Deductions and Credits
Many taxpayers miss out on valuable tax deductions and credits simply because they don’t keep records or aren’t aware of what they qualify for.
Commonly Overlooked Deductions and Credits:
- Self-Employment Deductions: If you’re self-employed, you may be able to deduct home office expenses, internet and phone bills, and business supplies.
- Education Credits: The American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit help reduce taxes for students and their families.
- Child Tax Credit: If you have dependents, you may qualify for a credit that can significantly reduce your tax bill.
- Charitable Contributions: If you donated to a nonprofit, you might be able to deduct your contribution—but you need proper documentation.
How to Avoid This Mistake
- Keep receipts and records for all potential deductions and credits.
- Use accounting software or apps to track deductible expenses throughout the year.
- Consult a tax professional who can help you find deductions you might not have considered.
3. Incorrectly Reporting Income
The IRS requires all income to be reported, even if it’s from a side job, freelance work, or gig economy platforms like Uber or Airbnb. Many taxpayers underreport income, either by accident or because they assume smaller amounts won’t matter. However, failing to report income can lead to penalties and even audits.
How to Avoid This Mistake
- Review all income sources. If you receive a 1099 form from contract work or freelance jobs, report it. The IRS receives copies of these forms, so they already know about your earnings.
- Even if you don’t receive a tax form (such as cash payments from a side hustle), you are still required to report the income.
- If you have multiple jobs, ensure you’re correctly reporting income from each one.
Being honest about all income sources will save you from potential penalties and interest down the road.
4. Not Making Estimated Tax Payments
If you are self-employed, a freelancer, or a small business owner, you don’t have taxes automatically withheld from a paycheck the way employees do. Instead, you’re responsible for making quarterly estimated tax payments throughout the year.
Many self-employed individuals forget or fail to make estimated payments, resulting in a large tax bill at the end of the year—along with potential penalties.
How to Avoid This Mistake
- Estimate your annual income and use the IRS Form 1040-ES to calculate quarterly tax payments.
- The due dates for estimated taxes are typically April 15, June 15, September 15, and January 15 of the following year.
- If you’re unsure how much to pay, a tax professional can help you determine the correct amount to avoid underpayment penalties.
By making timely estimated payments, you can prevent a financial burden when tax season arrives.
5. Entering Incorrect Information on Your Tax Return
It sounds simple, but small errors on a tax return can delay processing, cause tax refunds to be withheld, or even trigger an audit.
Common Errors to Watch For:
- Incorrect Social Security Numbers (SSN) for yourself or dependents.
- Mathematical mistakes in reporting income, deductions, or credits.
- Banking errors when providing direct deposit information for refunds.
- Misspelling your name, especially if it differs from your Social Security records (like after a name change).
How to Avoid This Mistake
- Double-check your return for accuracy before submitting it.
- Use tax software or work with a professional to minimize the risk of mistakes.
- If you file on paper, ensure all forms are filled out completely and legibly.
- If you’ve moved, update your address with the IRS to ensure you receive all necessary tax documents.
Taking an extra few minutes to verify your return can save you from processing delays and potential headaches.
Final Thoughts: Stay Ahead of Tax Mistakes
Filing taxes doesn’t have to be stressful or costly. By avoiding these five common tax mistakes, you can ensure a smoother, more efficient tax season—and keep more of your money where it belongs.
At Shammas Tax, we help individuals, freelancers, and small business owners navigate tax season with confidence. Whether you need assistance maximizing deductions, filing correctly, or planning for the future, our team is here to guide you every step of the way.
If you’re unsure about your tax situation or want to ensure you’re not overpaying, contact Shammas Tax today. We’ll help you file accurately, avoid penalties, and take advantage of every tax-saving opportunity available to you.