8 Red Flags To Watch For as You File Your Taxes

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Filing your taxes isn’t just about avoiding an IRS audit, it’s also an opportunity to take a hard look at your own financial habits. Are you rushing through your return, overlooking deductions or relying too much on a big refund? 

These red flags may not just raise eyebrows at the IRS, they could also signal that you’re making costly mistakes year after year.

As you prepare your tax return, here are the warning signs to watch for that could be hurting your finances more than you realize.

Filing Too Early

A sign of disorganization or poor budgeting is filing your taxes as early as possible to get what you hope is a refund. However, you might actually be moving too fast and missing out on some necessary documents, according to Alison Flores, manager of The Tax Institute at H&R Block. 

“While it’s great to be proactive, it’s important to wait until you have all the details required to claim child care expenses, student loan interest, the premium tax credit and other tax benefits,” she said.

Waiting Too Long To File

On the other hand, if you wait too long to file, there’s a problem that can crop up you might not have even considered: Someone could fraudulently file a return using your name or Social Security number to try and collect your refund, according to Kevin Knull, a CFP and CEO of TaxStatus.

If that seems like a wild possibility, he pointed out that in 2024, the National Public Data (NPD) breach exposed 272 million taxpayer identification numbers (TINs) and 2.9 billion records, including Social Security numbers. 

“Criminals are using stolen TINs to file fake and fraudulent returns, often claiming large refunds long before the legitimate taxpayer files and is aware of an issue,” he said.

To prevent this from happening, taxpayers should frequently monitor their IRS accounts. There are technology solutions that provide continuous monitoring of IRS accounts to help taxpayers detect suspicious activity and address fraud before it escalates.

“The earlier a legitimate return is filed, the less opportunity there is for criminals to submit a fraudulent one in its place,” he said.

Inaccuracies

Another byproduct of rushing to do your taxes is the higher probability of inaccuracies, Flores said. She recommended you double-check that your Social Security number, spelling of names, math totals and bank account information are correct, as typos can cause delays or rejections. 

Additionally, if you’re rushing to get a refund, this could suggest that you’re not spending wisely or budgeting throughout the year. 

Reporting Wrong Taxable Income

Reporting the wrong taxable income is also a frequent red flag that you are either disorganized or impatient. If you receive 1099 income as a freelancer or independent contractor and file your taxes before you’ve received all of these, this could cause you problems later on.

“Underreporting can lead to penalties and interest,” Flores said.

Mistaking a Hobby as a Business

While it’s ideal to be able to deduct as many expenses from your gross income as possible to reduce taxable income, not everything that brings in money qualifies as a business, Flores said. Educate yourself on what qualifies as a hobby versus a business.

“The IRS typically considers an activity a business if it has generated a profit for at least three of the past five years,” she pointed out. 

Otherwise, you must establish a profit motive, which can be determined by factors such as your expertise and the time and effort invested.

Not Acknowledging Digital Transactions

If you’ve bought or sold any cryptocurrencies or other digital assets, you might not realize you have to report some of these transactions on your taxes because they’re so new. As of tax year 2025 (next year’s filing), brokers will issue Form 1099-DA for digital asset transactions, Flores said. Taxpayers who sell or exchange digital assets in 2025 will receive this form reporting their transactions by Feb. 17, 2026.

Not Substantiating

The IRS loves a paper trail for just about everything you can think of. If you’re planning to take any tax credits, such as the American Opportunity Tax Credit (AOTC), the Lifetime Learning Credit (LLC) or others, if you don’t have the records to back these up, you could be in trouble later on. Prioritize record keeping and organization. Getting ahead of this can make future tax filings so much simpler.

Taking Social Media Advice

Lastly, following tax advice from social media can be a sign that you’re not doing your research or speaking to a professional, Flores suggested. 

Although social platforms can be helpful for information sharing, they can also spread inaccurate tax advice. 

“Last tax season, thousands of taxpayers filed inflated refund claims after relying on incorrect social media guidance. To avoid this, consult a trusted tax advisor before acting on advice from social media,” she said.

The way you file your taxes can reflect upon your own financial habits and help you get better prepared for next year.

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