The Most Common Tax Mistakes US Individuals Make - And How to Avoid Them
by Dos team
by Dos team
Tax mistakes are common. They are also expensive. Most of them are avoidable.
Here are the mistakes that come up most often among US individuals - and what you can do to prevent them.
The federal tax return deadline is April 15 each year. Miss it without filing an extension and the IRS charges a failure-to-file penalty of 5% of unpaid tax per month, up to a maximum of 25%. Interest accrues on top of that.
If you need more time, file Form 4868 by April 15 to get an automatic six-month extension to October 15. Important: this extends the filing deadline, not the payment deadline. Tax owed is still due by April 15.
State deadlines vary. Most align with the federal deadline, but not all. Check your state's requirements.
This is one of the most common mistakes - and one of the most costly. The IRS receives copies of most income documents directly from payers - W-2s from employers, 1099s from clients and financial institutions, and 1098s from lenders. When your return does not match what they already have, a notice follows.
Income from freelance work, the gig economy, rental properties, savings interest, dividends, and side businesses all needs to be reported. Many people focus on their W-2 and overlook the rest.
Most individuals take the standard deduction - $14,600 for single filers in 2024. If you itemise instead, every deduction needs to be documented and must qualify under IRS rules.
Common mistakes include claiming personal expenses as business deductions, overstating charitable contributions, and miscalculating home office deductions. The IRS scrutinises large deductions relative to income. If you itemise, keep receipts and records for everything.
If you are self-employed, a freelancer, or have significant income not subject to withholding, you are generally required to make quarterly estimated tax payments. The due dates are April 15, June 15, September 15, and January 15.
Failing to make these payments results in underpayment penalties - even if you pay in full when you file your annual return. The penalty accrues from the date each quarterly payment was due.
The IRS generally has three years from the filing date to audit a return. If income is significantly underreported, that window extends to six years. For fraud, there is no limit.
Keep records of all income, deductions, and supporting documents for at least three years after filing. Seven years is safer for complex situations. Digital records are acceptable - the important thing is that they are organised and retrievable.
Marriage, divorce, the birth of a child, a home purchase, a new job, or a significant investment can all change your tax situation. Many people file the same way year after year without checking whether their circumstances still apply.
If something significant has changed, speak to a specialist before you file. Getting your withholding and deductions right for the current year avoids surprises at filing time.
There is a point at which a tax situation becomes too complex to handle alone. Self-employment income, rental properties, investment activity, an IRS notice, or a major life event all cross that threshold. The cost of a good specialist is almost always lower than the cost of getting it wrong.
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