Most people who live and work in the U.S. need to file an annual tax return. Depending on your financial situation, your tax return may be simple or complex. If your tax return or financial situation is complicated, with many forms of income, deductions, or credits, you may end up making mistakes on your tax return. Even with a simple return, it’s possible that you might make a mistake that could cause the Internal Revenue Service (IRS) to impose fees, interest, or additional payments.
What follows are 15 of the most common tax filing mistakes — and how to avoid making them.
How Common Are Mistakes on Tax Returns?
The IRS does not release detailed statistics about how common mistakes on tax returns are, but they do say that mistakes are much more common when filing paper returns. The agency suggests that taxpayers use software to prepare their returns or work with a reputable tax preparer. This can help eliminate some of the common mistakes that occur with tax returns.
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Does the IRS Care About Small Mistakes?
Yes, the IRS definitely cares about small mistakes on tax returns, though the penalties may not be as large as they are for substantial mistakes. The IRS potentially levies two different kinds of accuracy-related penalties:
• Negligence or disregard of the rules or regulations penalty
• Substantial understatement of income tax penalty
In cases of negligence or disregard of the rules or regulations, the penalty is 20% of the amount that was underpaid due to negligence or disregard. For a substantial understatement, the penalty is 20% of the amount that was underpaid due to the understatement on the return.
These potential penalties are on top of still having to pay the tax that you owe.
Recommended: How to File Taxes for Beginners
16 Common Tax Mistakes
Here are a few of the most common tax mistakes.
1. Not Filing Your Taxes on Time
Each year, the IRS sets the deadline for filing your federal income tax return. This date is usually April 15, though it can be extended sometimes if April 15 falls on a weekend or holiday. Not postmarking or e-filing your return by the tax filing deadline can lead to a penalty.
2. Not Putting in the Right Social Security Number
The IRS uses Social Security numbers to match up information it receives from you with information it receives about you from your employer, bank, and other entities. Messing up even a single digit in your Social Security number will disrupt this process and could cause the IRS to reject your return.
Be sure to enter your Social Security number exactly as it is shown on your Social Security card. Do the same with your spouse and anyone else listed on your tax return.
Recommended: Guide to Understanding Your Taxes
3. Not Filing Your Taxes at All
Generally, most people who work in the U.S. and have income over the filing threshold are required to file an annual income tax return. The penalty for not filing is 5% of the unpaid taxes for each month that a tax return is late, not to exceed 25% of your unpaid taxes.
4. Filing Too Early
While you don’t want to file your taxes too late (after the deadline), you also don’t want to file them too early. You want to make sure that you have received all the W-2, 1099, and other tax forms that are due to you. If you get additional forms after you’ve already filed your taxes, you may need to file an amended return.
5. Inputting the Wrong Bank Information
The IRS encourages people to e-file and choose to have their refund sent via direct deposit. But if you put in the wrong bank routing and account information when filing your tax return, you may delay your refund.
6. Incorrect Information
It’s not only your bank account and routing information that needs to be correct — you need to make sure that all of your other numbers and details are correct. This includes any information from your W-2 or 1099 forms you manually input into your tax return. Using software or a reputable tax preparer can help to minimize the chances you enter incorrect information.
7. Missing Information
If you have more than one bank account and/or a number of investment accounts, you may forget to report income (or losses) from one, or more, of these financial accounts. This is an immediate red flag to the IRS. Keeping track of all your financial paperwork throughout the year can help avoid this problem.
8. Forgetting to Sign the Forms
The IRS says that your return is not valid unless it is signed. If you file a paper return, you (and your spouse, if you’re filing a joint return) must sign the return. E-filed returns can be signed electronically by selecting an electronic PIN.
Recommended: The Fastest Ways to Get Your Tax Refund
9. Forgetting Important Paperwork
If you are working with a tax preparer, make sure to bring, or electronically send, all of your tax-related paperwork. This includes all income statements (such as W-2s and 1099s) and all tax deduction documents (such as Form 1098 for mortgage interest and Form 1098-T for college tuition paid). This will help prevent errors stemming from missing information.
10. Not Taking Advantage of Tax Breaks
You are legally allowed but not required to take any tax deductions or tax credits that you are eligible for. The IRS generally does not care if you pay more tax than necessary. But not taking advantage of tax breaks you’re eligible for can cost you money.
11. Writing the Check to the Wrong Entity
If you owe money to Uncle Sam, be sure to make the check out to the U.S. Treasury. If the check isn’t filled out correctly, the IRS likely won’t cash it. This can result in a late payment — and a penalty. Keep in mind that you can also pay any owed taxes online via IRS Direct Pay or use the electronic payment options in your tax software.
12. Math Errors
The IRS says that math errors are among the most common tax filing mistakes. This is especially true when filling out your tax return on paper, since tax software will generally do all the math for you.
13. Not Claiming All Streams of Your Income
Even if you are paid in cash or don’t receive a W-2 or 1099 form, you are legally required to report all income received in a tax year. Not claiming an income stream, even if it was part-time or “gig work,” may open you up to additional taxes, interest, and/or penalties.
14. Filing Your Taxes Under the Wrong Status
There are requirements that come with the different filing statuses that are available to you, and filing under the wrong status is a common tax filing mistake. For example, you can’t use the “head of household” status just because you make the most money in your family — this tax filing status is only for unmarried people who have to support others. If you’re married, you have a choice of two different types of filing status, and one will likely be more advantageous to you than the other.
15. Not Getting Help When You Need It
If you have a relatively simple tax return, you may feel comfortable filing your tax return on your own. But as your taxes get more complicated, it may make sense to work with a reputable tax professional. Not getting help when you need it may end up costing you a significant amount of money.
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16. Name/Misspelling Errors
Our final tax filing mistake that is common is, yes, name spelling errors. Make sure that you are checking and double checking all of the names entered into your tax return. Misspelling a name may cause the processing of your return to be delayed.
Tips on Avoiding Tax Mistakes
If you’re looking to avoid tax mistakes, here are a few things to keep in mind:
• Consider using tax software that can do the math for you and automatically select the right forms for your situation.
• If your financial situation becomes even more complicated, consider working with a tax professional.
• Include all the information and tax documents you’ve received from all sources.
• Make sure to wait to file until you’ve received all your documents, but early enough that you don’t go past the April filing deadline.
The Takeaway
In life, mistakes happen. However, you generally want to avoid them when you’re filling your tax return. Even a small misstep could hold up your return, delay any refund, and lead to interest and penalties. It’s wise to take time to understand your taxes or rely on a tax professional for help. Getting it right the first time around can help you save time — and money.
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FAQ
Does the IRS penalize you for tax filing mistakes?
The Internal Revenue Service (IRS) charges penalties for certain — though not all — tax filing mistakes. Mistakes that can lead to penalties include:
• Not filing your return and paying your tax by the due date
• Failure to pay proper estimated tax
• Substantially understating your tax liability
• Understating a reportable transaction
• Filing an erroneous claim for a refund or credit
Even if you don’t get hit with a penalty, you may still get an unexpected (and unwelcome) tax bill, either right away or possible years later.
How often does the IRS make mistakes with tax returns?
The IRS does not release statistics about how often they make mistakes, but it is almost certainly less often than taxpayers make mistakes. If you think that the IRS has made a mistake when processing your return, you can either contact the IRS directly or work with a reputable tax professional to rectify the situation.
How do I know if I filed my taxes right?
The IRS generally will accept your tax return within a few days. This means they’ve received it and scanned it for basic errors, like missing information or major red flags.
Once your return is accepted, the agency will begin a more detailed process of examining your return — they’ll check your income reports, verify the deductions and credits you’ve claimed, and ensure everything aligns with the tax laws.
If you’re due a refund, the IRS will approve it once they are satisfied your return is accurate. Typically, you can expect a refund within 21 days after you’ve e-filed.
Keep in mind, though, that the IRS has three years from the date you filed your return (or April 15, whichever is later) to perform an audit and potentially charge you additional taxes. That’s why it’s a good idea to keep your tax records around for at least three years.
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