We all know that taxes can get complicated, especially when you have several forms, uncertain deductions, dependents, and multiple income sources to account for. Despite the intricacies, the Internal Revenue Service demands full accuracy and compliance at all times.
Some of the most frequent mistakes occur when taxpayers fail to report all sources of income, choose the wrong filing status, or overlook eligible deductions and credits. Even small errors can lead to penalties, loss of returns, and potentially trigger audits, which is why you need to remain vigilant at all times, especially during tax season.
Filing taxes requires extra caution, as even simple mistakes can have severe consequences. At Victory Tax Lawyers, we understand the common pitfalls taxpayers face and the serious consequences that can follow. Our experienced attorneys are ready to help you navigate these challenges and represent you before the IRS if needed. Not sure how to take the first step towards resolving your tax mistakes? Schedule a free tax attorney consultation today to learn more about our tailored tax relief solution.
In this post, we’ll walk you through 13 of the most common tax mistakes people make and what steps to take to avoid them. Whether you’re self-employed, a freelancer, or filing as an individual, avoiding these errors will save you time, stress, and money.
Common Tax Mistakes That Trigger IRS Audits
Keeping up with tax filing, however stressful it can be, is necessary for you as a taxpayer. To remain safe, you want to avoid these common errors:
1. Forgetting to Report All Sources of Income
Failing to report all sources of income is one of the most common and costly mistakes taxpayers make. If you have multiple income streams, such as freelance gigs, investment gains, or even payments received through apps like PayPal, you need to to report them on your tax return.
What many people don’t realize is that the IRS gets copies of their tax documents, including W-2s and all types of 1099 forms. For example, you may receive a 1099-NEC or 1099-K for your freelance work, gig economy jobs, or certain digital payments. When you file your tax return, the IRS compares your reported income against the forms and records they’ve received. If there are omissions or discrepancies you cannot account for, the IRS follows up with penalties.
To avoid making this mistake, keep track of all sources of income you receive throughout the year. In addition, report the exact amounts that are shown on your W-2 and 1099 tax forms.
2. Incorrectly Claiming Your Filing Status
Your filing status (single, married filing jointly, and head of household) plays a critical role in determining how your tax liability is calculated. It influences everything from how much tax you owe to whether you need to file a return, the tax rate applicable to your income, your standard deduction, the tax forms you’d use, and even the deductions, refunds, and credits you can claim.
All these just go to show that the wrong filing status can and will throw your entire return off balance. You may end up underpaying or overpaying taxes, or missing out on tax credits you could have been eligible for. For example, if you qualify for Head of Household status but mistakenly file as Single, you’d lose out on a higher standard deduction and more favorable tax brackets.
This is why it’s important to double-check which status best applies to you, especially if you’ve made some major life transitions, like getting married, divorced, or becoming a parent. The IRS has provided an Interactive Tax Assistant tool to guide you in choosing the filing status that best applies to you.
3. Missing Tax Deadlines and Extensions
Not filing your taxes on time is arguably one of the most prevalent mistakes most taxpayers make. Consistently missing your tax deadline may also indicate to the IRS that you’re trying to evade taxes, which is considered a federal crime deserving of jail time. When you fail to file your federal income taxes, not only do you suffer from penalties (Failure to File Penalty), but you also put yourself at the risk of collection actions and even legal charges.
If you do not trust your memory to file your taxes when due, you can set calendar alerts well before April 15th, the standard deadline for filing federal income tax returns in the U.S. An even better approach is to use tax software to track deadlines. Moreover, if you think you need more time to file your return, you can apply for an extension with the IRS.
4. Incorrect or Missing Information
Providing incorrect information or omitting required details is a common mistake many taxpayers make. It is important to make sure that your Social Security number, bank account numbers, and filing status are written correctly on all forms. Leaving certain fields blank is another frequent oversight. If you’re not sure about how to properly complete your return, seeking guidance from a tax professional can help prevent costly mistakes.
5. Claiming Ineligible Deductions or Credits
Tax deductions and credits can significantly reduce your tax liability, but claiming one you’re not qualified for can trigger serious consequences. You may end up triggering penalties, audits, and repayment demands.
Some deductions and credits have strict rules, and misunderstandings happen more often than you’d think. One example is the home office deduction, which you can’t claim simply because you work from home. To be eligible, your workspace must be used exclusively and regularly for business. Another example is the Lifetime Learning Credit, which is only available to those paying qualified tuition and related expenses at eligible institutions. To avoid the mistake of claiming deductions that aren’t available to you, double-check their eligibility criteria before claiming them.
6. Overlooking Self-Employment Tax
Self-employed individuals often face different tax obligations that can easily be overlooked if they’re not fully familiar with them. Whether you’re a freelancer, business owner, or earning investment income, you’re responsible for paying what the IRS calls self-employment tax. It’s a common mistake to overlook this, but failing to account for it can leave you with a much higher tax bill than expected.
According to the IRS rules, all self-employed individuals are required to make quarterly estimated payments to stay current with their tax liability. If tax calculations feel daunting, the IRS Form 1040-ES includes a worksheet that can help you determine your estimated taxes. Tax rules can be tricky. If you need extra help, you may want to consider consulting a tax professional to help you handle your taxes and avoid the risk of incorrect filing.
7. Mixing Personal and Business Expenses
A common bookkeeping mistake small business owners and self-employed individuals make is mixing their business and personal finances. Doing this is one of the easiest ways to draw unwanted attention from the IRS. If you’re self-employed or running a small business, it’s best to keep separate bank accounts and credit cards so that things don’t get messy during tax season.
Mixing personal and business expenses complicates your bookkeeping and makes it more difficult to claim legitimate business expenses. For example, many self-employed individuals claim their entire car mileage, even though some of those trips were completely unrelated to their business logistics. When the IRS sees this, it immediately triggers the need for extra scrutiny.
8. Ignoring Taxable Benefits (e.g., Bonuses, Gifts)
Not all perks come tax-free. An example includes your year-end holiday bonuses and even company gift cards. As surprising as it sounds, the IRS sees benefits and gifts from your employer as taxable income. This requirement stems from Internal Revenue Code Section 61, which states that all types of compensation are subject to income tax unless specifically excluded by the tax code.
Taxable benefits are a detail many people miss, but failing to report these “extras” can leave you with surprise liabilities when tax time arrives. If you’re unsure where to categorize those bonuses and gifts, assume it’s taxable until your tax lawyer tells you it’s not.
9. Failing to Keep Proper Tax Records
Here’s a simple rule to help you stay out of trouble with the IRS: if you can’t prove it, don’t claim it. The IRS recommends keeping tax records for at least three years, and in some cases, longer. This includes receipts, invoices, contracts, bank statements, and so on. Essentially, anything that backs up your income and expenses and can serve as future reference material if needed.
If managing and tracking all your records and documents manually feels cumbersome, consider storing them digitally as an alternative to physical storage. In fact, we advise going digital to stay audit-ready; that way, everything you need is at your fingertips, and you won’t have to scramble through disorganized records if the IRS comes calling. Some tips to help you transition include scanning your receipts, saving PDFs of invoices, and using cloud-based accounting software to organize your records.
10. Math Errors
Math errors are very common. From incorrect addition and subtraction to miscalculating deductions or taxable income, these slip-ups can lead to delays in processing your return, or worse, trigger IRS penalties.
Before you file, take a step back and double-check your numbers. If you’re filing manually, go over each calculation carefully. If you’re using tax software, make sure the information you enter is accurate. Remember, your software is only as good as the data it’s given.
11. Underreporting or Overreporting Business Mileage
Business mileage is one of the most commonly misreported tax items. Some people underestimate their mileage and miss out on deductions, while others overreport, hoping to get a bigger break. Both moves are risky. Both overreporting and underreporting mileage are red flags to the IRS and may attract costly penalties. The IRS expects accurate, consistent reporting, meaning you can’t afford to estimate or rely on approximations.
It’s important to track your mileage effectively so that you can accurately apply for your vehicle deductions. You can achieve this in real time using apps like MileIQ, Everlance, or by maintaining a traditional logbook. Whatever you opt for is fine. Just make sure every trip is properly documented—where you went, why, and how many miles you drove. And as we’ve advised before, don’t try to mix the mileage for business and personal trips.
12. Not Withholding Enough Tax (Freelancers & Contractors)
Unlike conventional employees who have their taxes subtracted directly from their paychecks, freelancers and contractors are responsible for their tax withholding; that is to say, there’s no one taking it from their payroll or income. Without an employer to withhold taxes, the IRS requires you to make quarterly payments to cover your estimated tax liability.
Since taxes aren’t automatically deducted, freelancers and contractors may struggle to plan their withholding. Failure to plan your taxes ahead of time can result in complications during tax season and a large tax bill at the year’s end. It can also lead to underpaying, which could lead to penalties or missing out on cash flow.
To stay on track, you can use tools like QuickBooks Self-Employed or the IRS Tax Withholding Estimator to calculate what you should be paying quarterly. And when in doubt, consulting a tax professional can go a long way toward ensuring you stay compliant.
13. Ignoring Past Tax Mistakes and Failing to Correct Them
While time may resolve many issues, it doesn’t fix tax errors. If left unaddressed, these mistakes can accumulate, resulting in mounting debts from interest and penalties. This is why it’s important to regularly assess your previous tax returns and take advantage of the improvement and learning opportunities each tax season presents.
By reflecting on your past filings, you may uncover mistakes that need to be corrected to avoid further penalties and interest. These could include missed deductions or income that was underreported. The goal is to learn from these experiences, ensuring that each tax season is better than the last.
How to Avoid These Tax Mistakes
The best way to avoid these common tax mistakes and keep away from IRS audits is to take proactive measures. With a few smart practices and the right support, you can reduce stress during tax season and protect yourself from audits and penalties.
1. Staying Organized Year-Round
Most tax issues arise well before April, typically beginning when you neglect to track your finances throughout the year. Being organized not only makes tax time easier but also helps you claim every deduction you’re entitled to. As soon as your tax forms start coming in, set up a folder, whether physically or digitally, for storing your tax documents. When all your documents are in one place, you won’t have to scramble for your forms at the last minute.
You also want to separate your business expenses from your personal expenses. To achieve this, set up a business bank account separate from yours. This not only helps you track your business expenses accurately but also makes tax preparation much simpler when tax season comes around. In addition, having a separate account simplifies the process of reconciling your bank statements, preparing financial reports, and spotting business-related deductions you can claim, lsuch as bank fees.
If you’re looking for a little extra support to increase your commitment and achieve even better results, consider fully embracing digital tax software or reaching out to a tax professional for their expertise. Bear in mind that, while tax software can be a valuable tool, having a tax professional by your side can make a big difference.
2. Understanding Tax Laws & Updates
Other than early filing, another reliable approach to avoid errors is to be familiar with the tax laws. Each year tax laws evolve, sometimes with minor adjustments, other times with significant overhauls, and these changes impact all aspects of your tax management. This means that being up-to-date with these changes is non-negotiable.
Staying current on the tax changes that concern you keeps you compliant with current laws, consequently helping you manage your taxes more effectively. If you’re wondering how to get the latest tax updates, begin by:
- Staying updated on key filing deadlines and quarterly estimated tax due dates.
- Learning about changes that affect your deductions, credits, or filing status.
- Taking advantage of the free tools and publications offered by the IRS on its site.
All of this information is available on the IRS website. You may want to bookmark the IRS website and visit it regularly, as it serves as your go-to source for all tax-related information. You can also follow reliable tax blogs or subscribe to a tax newsletter.
3. Seeking Professional Help When Needed
In recent years, DIY tax filing has become more popular as it’s a more cost-effective solution for taxpayers. Managing your own taxes has its own appeal, but it may not always the safest option, especially if your financial or tax situation is already complex.
Successfully navigating your taxes requires a deep understanding of tax laws and regulations. The challenge is that tax law is not only a vast field, the laws are also constantly changing, thereby making it all the more difficult to keep up with. Trying to manage your taxes without having the knowledge and skills to do so can create complications. If your tax filing starts to feel complicated at any point, it may be time to seek the assistance of a professional to ensure it is handled correctly.
A professional can help you correct errors, respond to IRS audits and notices, oversee your interactions with the agency, negotiate with the IRS to lower or settle unpaid taxes, and represent you in court should it come to that.
At Victory Tax Lawyers, we see our clients not as just another case number but as a person with a case that requires our full attention and expertise. For quality professional service, contact our tax attorneys today, free of charge.
Need Legal Assistance for a Tax Issue?
Knowing and avoiding common mistakes during tax filing can help you remain compliant and steer clear of unnecessary scrutiny. The truth is, tax season doesn’t have to be stressful. With consistent financial management, organized recordkeeping, and a proactive approach to your tax obligations, you can face the season with greater ease and confidence. One of the ways to achieve this is to work with a professional.
Not sure where to begin? Our best tax lawyers are here to help. Schedule a free consultation today and get your tax problems fixed once and for all.
Frequently Asked Questions
Who Needs to File Quarterly Estimated Taxes and Why?
The IRS expects taxpayers to pay taxes as they earn income throughout the year. Therefore, if your income isn’t subject to automatic tax withholding, you need to make those payments yourself quarterly through what the IRS calls “estimated taxes.”
This typically applies to freelancers, self-employed persons, small business owners, contractors, investment income owners, and solo practitioners. By staying current with your quarterly tax payments, you not only remain compliant but also avoid penalties and interest charges that can result from underpayment.
What Resources Are Available for Free Tax Return Preparation Assistance?
The IRS offers free online resources to answer tax questions and assist with return preparation for those who meet specific age, income, disability, or military status criteria. Examples include Volunteer Income Tax Assistance and Tax Counseling for the Elderly (TCE), which provide free tax assistance to taxpayers who fall within the eligibility requirements.
The MilTax program is available for military service members, while the AARP Foundation Tax-Aide helps individuals aged 50 years and older. Low-Income Taxpayer Clinics offer assistance for IRS disputes, often for free or a small fee. You can also use tools like the IRS Help and Resource Center, Interactive Tax Assistant, and Forms and Publications for self-guided support.
