The 5 Tax Mistakes Costing Americans an Extra $500 to $3,200 Per Year
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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Tax season may feel like a once-a-year task, but that mindset can lead to expensive mistakes. Without proactive planning, it’s easy for taxpayers to overpay the IRS.
From overlooked deductions to misreported investment income, tax professionals described the five tax mistakes that could cost Americans thousands of dollars each year.
1. Treating Taxes as a Once-a-Year Event
One of the most expensive mistakes taxpayers make happens before they even open their tax software, according to Christina Taylor, VP of tax development and delivery at april, an embedded tax technology platform.
“When people only think about their return in February or April, they miss credits and optimizations they’re actually eligible for, which is how you end up giving part of your refund back to the IRS,” she said.
Taylor noted that the impact can be substantial. “Last year, Americans overpaid their federal taxes by about $3,200 on average, and spent billions of dollars and 6.5 billion hours on tax prep.”
Bob Wheeler, a Los Angeles-based CPA, CFO and author, echoed that sentiment. “Drawing from my three decades of experience helping Los Angeles clients navigate the IRS, I can tell you that most tax pain is self-inflicted — not because people want to pay more, but because they lack a proactive strategy.”
Wheeler said that by waiting until April to think about taxes, most opportunities to reduce a bill have already passed.
2. Failing To Track Deductions Throughout the Year
Another common tax mistake is failing to track deductible expenses throughout the year, especially when taxpayers assume they will take the standard deduction.
Taxpayers should always keep track of charitable contributions (cash and non-cash donations), medical expenses and deductible interest expense for state deduction purposes.
“If you can’t prove it, you can’t deduct it,” said Jennifer Kohlbacher, a CPA and director of wealth strategy at Mariner Wealth Advisors. “Digital receipts are your best friend.”
3. Reporting Investment Income or Stock Compensation Incorrectly
Investment income and stock compensation can introduce complexity that leads to overpaying taxes.
Kohlbacher said errors often occur when employees receive equity compensation such as restricted stock units or non-qualified stock options and sells those shares. In these cases, often “the basis is typically not calculated or reported correctly,” she said.
That mistake can directly increase capital gains taxes owed.
4. Missing Estimated Tax and Withholding Strategies
Some taxpayers who earn a side income or run a small business may not fully understand the rules around estimated tax payments, which must be paid quarterly throughout the year, Kohlbacher said.
“The ability to utilize the correct estimated tax payment strategy will save you from underpayment penalties and interest,” she said. It also allows taxpayers to put their own money to work longer instead of overpaying the government.
Another mistake is not changing withholding after a life change, like a marriage or a new child, Wheeler explained. This can lead “to either a massive bill or a huge, interest-free loan to the government in the form of an overpayment,” he said.
5. Simple Filing Errors and Poor Recordkeeping
Even basic mistakes like typos or incorrect math can create unexpected tax headaches such as delaying refunds or triggering IRS notices, Wheeler said.
While these mistakes may seem minor, they contribute to a broader pattern Wheeler sees each year. “The average taxpayer often leaves $500 to $2,000 on the table annually.”
How To Avoid These Costly Tax Mistakes
The good news is that most tax mistakes are preventable with better planning and organization. Wheeler said even simple steps, like organizing receipts, using digital technology to keep you organized and scheduling a mid-year review with a CPA, can prevent many of the most common mistakes.
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