Ways To Avoid Common Tax Filing Mistakes

You earn enough, that’s not the problem. The problem is costly tax mistakes. And most people don’t even see them. Here are 10 of the most common traps at tax time and how to fix them before they drain your wallet: 1/ Filing too late → File early to avoid penalties, interest, and last-minute stress. 2/ Missing deductions → Review every eligible expense with a checklist so nothing slips through. 3/ Forgetting home-office write-offs → Claim your workspace correctly, it’s a legitimate deduction when used properly. 4/ Misreporting freelance income → Track all 1099s and side income, even small gigs, to stay compliant. 5/ Not tracking receipts → Use apps to keep everything organized, no shoebox scramble in April. 6/ Over-relying on refunds → Adjust withholdings to keep more cash throughout the year, don’t treat refunds like savings. 7/ Ignoring retirement contributions → Add pre-tax savings, like IRA or 401(k), to reduce liability while building your future. 8/ Treating tax planning as “year-end only” → Plan quarterly, not yearly, so you’re not scrambling at the finish line. 9/ Not separating business and personal expenses → Keep clean records with separate accounts to avoid audits and chaos. 10/ Skipping professional advice → Consult an expert before big decisions, because mistakes cost more than fees. Taxes don’t just measure income, they measure habits. The right ones save you thousands. Which of these mistakes have you seen (or made) most often? Follow me Divakar Vijayasarathy for reflections on Life, Tax and Entrepreneurship.

If you want to buy back your time, paying someone to do your taxes is a great option. I just recoil when I see some people talk down to those who do their own taxes. The truth is that for most FAANG workers who just have W2 income and take the standard deduction, it isn't that hard (even if the numbers are large). The key is knowing about potential gotchas that you may run into. Enter the trinity of common tax issues: I refer to these as the holy trinity of common FAANG tax filing mistakes: #1 Incorrect Backdoor Roth Entry This has tripped me up twice! If you do backdoor Roth IRAs (this doesn’t include Mega-Backdoor Roth), be extra careful when entering this information into the software. Keep an eye on the "estimated amount owed" in the software as you enter the information. A Backdoor Roth that is properly entered should result in $0 in additional taxes. Quick way to check past returns: Look at your 1040, field 4b. If it is $0 you are good. If it isn’t you may have made this mistake. #2 RSU Cost Basis is $0 When importing your 1099 from your broker for your RSU sales, the cost basis is sometimes incorrectly reported as $0. This will result in the tax software thinking the entire RSU sale is reported as a 100% gain, resulting in significantly more taxes. Quick way to check past returns: Scan through your 1099 Cost Basis column for any $0 values. #3 Missing ESPP Cost Basis Adjustments If you sold ESPP shares, the income from the discount is included in your W-2. Then, your broker will also show your cost basis with the discounted purchase price resulting in being double taxed on the discount! Quick way to check past returns: If your W-2 includes ESPP income check to see if the adjustment is made on IRS Form 8949. If you make one of these mistakes, remember you have three years from the date you file to correct them.

Most people assume their tax forms are correct. I don’t. I’ve seen too many errors—and they’re expensive. One of the biggest? Mismatched income reporting. Here’s how it happens: - You receive a 1099, W-2, or other income form. - You file your taxes, thinking everything is covered. - The IRS runs a match against what they have on record. If your numbers don’t match exactly, you’ve got a problem. Maybe a client sent a 1099 late.  Maybe you forgot a small dividend payment. Maybe a payroll correction wasn’t updated. Doesn’t matter. The IRS assumes you underreported income. At best, you get a letter and a bill. At worst, penalties and interest start adding up. Here’s how to avoid it: – Cross-check every income source – Match reported income before filing – Request corrections early I’ve seen people pay thousands over simple reporting mistakes. I’ve also seen those who check their numbers pay exactly what they owe—nothing more. Which side are you on?