15 Tax Mistakes You Should Watch Out For

Tax blunders can happen to the best of us. But they can also cost us money, so knowing how to avoid them could result in major savings. Here are a few tax-related errors to stay away from.

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The income you earned from your side gig or investment account? The IRS wants to know about it, and if you attempt to conceal it, you'll risk getting audited. Look out for 1099 forms in the mail or by email, as these will summarize different types of earnings, from dividend payments to bank account interest.

ALSO READ: 3 Ways to Score a Higher Tax Refund This Year

Ever since the Tax Cuts and Jobs Act was implemented in late 2017, the standard deduction has increased substantially. But that doesn't mean itemizing won't pay off for you. Rather than assume, add up your eligible deductions and see which number is higher -- you may be surprised to learn that itemizing makes sense after all.

Your Social Security number is used to identify you, and putting the wrong one on a tax return could cause it to get rejected. Even if you're sure you know that number by heart, you may want to check it again.

You have different options when choosing a filing status, but the one you select will impact your tax bracket, as well as your eligibility for certain tax breaks. Be sure to make the right call so you don't lose out.

ALSO READ: The Secret to Getting Into the 0% Tax Bracket

A tax credit is a dollar-for-dollar reduction of your tax liability, and the more credits you can claim, the more your IRS bill shrinks. If you're a low-income filer, you may be eligible for the Earned Income Tax Credit. If you have children, be sure to look into the Child Tax Credit. And if you're a student, you may be entitled to the American Opportunity Tax Credit or the Lifetime Learning Credit.

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Tax deductions exempt a portion of your earnings from taxes. There are many deductions you can claim if you itemize, including mortgage interest and state and local taxes, and those are pretty straightforward. But other deductions, like medical expenses and business outlays, may require you to comb through loads of paperwork and receipts to arrive at the right number. That's a step worth taking, though, because if you guess at your deductions and are off, it could become a problem if the IRS chooses to audit your return.

You may be scared to claim $20,000 in business deductions against a $60,000 income. But if you did indeed incur those costs in the course of earning that $60,000, and they're all valid, then you shouldn't hesitate to claim them as long as you have proof for the IRS.

ALSO READ: 3 Reasons to File Your Taxes Early This Year

If you're late with your tax return and are owed money, the worst you'll do is delay your refund. But if you owe the IRS money, filing your return late could subject you to a costly penalty equal to 5% of your unpaid tax bill for each month or partial month your return is late.

A tax extension gives you six extra months to file your taxes. But one thing it doesn't do is give you extra time to pay. If you owe the IRS money and don't pay by the filing deadline, you'll incur interest and penalties on that sum.

If you file a paper return, you're more likely to make a mistake and delay any refund you're owed. A better bet is to file electronically. If your income is under $72,000, you're eligible to file online for free.

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Tax refunds might seem like bonus money, but in reality, all a refund means is that you paid too much tax during the year. If money is tight in your household, or if you've consistently gotten large refunds year after year, it's time to adjust your withholding so less tax is taken out of your paychecks.

ALSO READ: When Can I Expect My Tax Refund?

Saving in a traditional IRA or 401(k) plan won't just set you up nicely for retirement -- it'll also save you money on taxes. That's because those contributions are tax-free, so they lower your tax bill the year you make them.

If you're a salaried worker with no deductions or outside income, then you probably don't need a tax preparer to tackle your return. But if your tax situation is at all complicated, then it definitely pays to call for some help. What you pay in tax prep fees, you might save via tax breaks you didn't know you were entitled to.

You may be tempted to toss your tax documents once your return is complete. Don't. The IRS can come back and ask for more tax information up to three years after you file a given return, so hang onto those documents for at least that long. A good idea to is scan them and store them electronically so they won't degrade or get lost.

ALSO READ: The 13 Most Common Tax Forms

There have already been two rounds of stimulus payments that have gone out during the pandemic. The first was worth $1,200 per person, and the second was worth $600. If you were entitled to that money but never received it, be sure to claim the Recovery Rebate Credit on your 2020 return so you don't miss out.

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The aforementioned tax mistakes could cause you a world of headache -- and regret. Now that you know what pitfalls to look out for, you can make an effort to steer clear of the various errors that could cause you to lose money and make the process of filing a tax return more stressful than it needs to be.

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