Key takeaways

  • The U.S. tax code is estimated to be over 1 million words, and it contains information on tax deductions, credits, filing statuses, and penalties that impact how much tax you owe. 
  • The more you know about the tax code, the more you can leverage it to reduce your tax liability.
  • If you have a more complex scenario, such as owning a small business, holding large or complex investments, owning real estate, planning for retirement, or having a high net worth, common mistakes could cost you thousands of dollars extra in taxes.
  • If you file your own taxes, advanced tax software can help avoid simple mistakes, but to be safe, hiring a tax advisor can ensure you get the largest refund possible and create a year-round strategy to optimize your taxes.

Have a tax question? Harness can connect you with hand-picked tax, financial, and estate experts from around the United States.

Table of Contents: 

  1. Top Tax-Filing Mistakes That Cost You Money
  2. Other Common Tax Return Mistakes
  3. How to fix a mistake on a tax return I already filed?

Top 5 Tax Mistakes That Cost You Money

The five tax filing mistakes below can be the most costly when it comes to the amount you owe to the IRS. 

1. Automatically Taking the Standard Deduction

The standard deduction is a fixed amount that reduces your taxable income. It’s simple and doesn’t require taking the time to itemize tax deductions. However, automatically opting for the standard deduction can cost you money.

By automatically taking the standard deduction, taxpayers with unique situations may miss out on a larger deduction through itemizing, especially if they have significant deductible expenses.  Itemizing involves deducting expenses like mortgage interest, state and local taxes, medical expenses, business expenses, and charitable contributions individually. This oversight can result in a higher taxable income and, therefore, a higher tax bill.

A tax advisor can ensure you don’t miss these tax deductions:

2. Not Taking All Eligible Tax Credits

A tax credit is a dollar-for-dollar amount you may claim, if eligible, on your tax return to reduce the income tax you owe. A tax credit directly reduces the amount you owe the IRS and can increase your tax return. Missing out on a credit can cost thousands. 

Work with a tax professional to see which credits you are eligible for:

3. Using the Wrong Tax-filing Status

Using the correct filing status is important to optimize your taxes. Your tax filing status determines details, including your filing requirements, standard deduction amount, eligibility for tax credits, and tax bracket. 

How using the wrong tax-filing status can cost you money:

4. Not Filing Your Taxes On Time

You are required to file your taxes by the deadline (typically April 15 in most years) unless an extension is filed. Failing to meet the filing deadline without an extension leads to a failure-to-file penalty.

Key details to file a tax return extension and avoid penalties:

5. Not Paying Estimated Quarterly Taxes

According to the IRS, Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.

Bonus: See our guide on 20 Ways to Reduce Your Taxes for a complete list of tax optimization strategies for executives, company founders, early startup employees, and small business owners.

Other Common Tax Return Mistakes

Here are a few of the most common filing mistakes that can cause a delay in your return being processed.

How to Avoid Costly Tax Mistakes

To help avoid errors and ensure you take advantage of your eligible tax deductions and credits, consider the following:

  1. Use advanced tax prep software if you are self-filing that automatically looks for all possible tax deductions and credits. Even then, the software can miss deductions and credits if you do not provide all the relevant details. 
  2. Use a tax advisor to minimize your tax bill, especially if your situation is more complex, including investments, retirement planning, business income, or rental properties. Tax professionals are trained to understand the nuances of each tax situation and collect the necessary information to minimize your tax bill. Additionally, a tax advisor can work with you year-round to target a reduction in your tax burden and help avoid a higher tax bill on your annual return.

Harness can connect you with a tax advisor that aims to meet your needs. From owning a business to exercising employee stock options to starting a family and everything in between, Harness’s goal is to have your tax needs covered.

How to Fix a Mistake on a Tax Return You Already Filed?

According to the IRS, if you make a mistake on your tax return and need to make a change or adjustment, you can file an amended return. You’ll use Form 1040-X, Amended U.S. Individual Income Tax Return to file an amended return, which can be completed electronically with tax filing software.

Harness Can Help Save You Money on Taxes

From starting a business to starting a family, we connect you with tax experts and wealth management professionals who have experience and strive to understand your situation and endeavor to meet your goals. We’ve hand-picked top tax, financial, and estate firms from around the United States to help you find the best advice and advisor for you. Get started with Harness today.

Tax related services provided through Harness Tax LLC. Harness Tax LLC is affiliated with Harness Wealth Advisers LLC, collectively referred to as “Harness”. Harness Wealth Advisers LLC is a paid promoter, internet registered investment adviser. This article should not be considered tax or legal advice and is provided for informational purposes only. Please consult a tax and/or legal professional for advice specific to your individual circumstances.

This article does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only. To the extent you have questions regarding the applicability of any specific topic discussed above based on your specific portfolio or situation, please consult a professional adviser of your choosing.