Tax season is closing in on the April 15 deadline to file your return or request an extension and a new report details some common mistakes that Americans are making throughout the year that are costing them money.
A report by GOBankingRates broke down five tax mistakes that could cost American taxpayers thousands of dollars every year.
Those common mistakes range from not claiming deductions that were available to the taxpayer or failing to track deductible expenses to misreporting income.
Here’s a look at the five tax mistakes outlined in the report.
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Approaching taxes as a once a year event
Christina Taylor, vice president of tax development and delivery at tax technology platform April, told GOBankingRates that taxpayers who only think about their returns during the filing season “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 added that 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.”
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Not tracking deductions throughout the year
Taxpayers also tend to fail to keep track of their deductible expenses over the course of the year, which happens more frequently when filers are operating under the assumption that they will claim the standard deduction rather than itemizing their return.
Those situations can be avoided if taxpayers keep track of their charitable contributions, whether made with cash or through non-cash donations, along with medical expenses and any interest expenses that they may be able to deduct from their state tax bill.
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Incorrectly reporting investment income or stock compensation
Taxpayers may overpay taxes on income from their investments or from stock compensation in the form of restricted stock options or nonqualified stock options that are sold.
Jennifer Kohlbacher, a CPA and director of wealth strategy at Mariner Wealth Advisors, told GOBankingRates that taxpayers often fail to calculate or report their tax basis correctly, which can increase the amount of capital gains taxes they owe.
Missing estimated tax payments or not updating withholding
Taxpayers who operate a small business or are self-employed are required to make estimated tax payments to the IRS each quarter throughout the year, and failing to pay the appropriate amount can cause the taxpayer to face penalties for the amount underpaid as well as any related interest.
Life changes that affect a tax filer’s status, like getting married or having a child, are situations in which taxpayers should update their withholding information to account for the change, which can reduce the size of their refund by raising their take-home pay.
Filing errors and poor recordkeeping
Taxpayers may make mathematical errors when filing or make typos in their tax return that could cause the IRS to flag a tax return for review or even an audit.
Reviews by the IRS can also cause taxpayers’ tax refunds to be delayed.
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