Common Tax Mistakes and Considerations to Help Avoid Them

September 22, 2025

When most people think about taxes, they imagine the big slip-ups—the kind that trigger IRS penalties or audits. But in reality, the most common missteps fall into two buckets: simple human errors and missed opportunities to lower your tax bill. Both can cost you time, money, and peace of mind if you’re not careful.

Fortunately, with a little preparation—and sometimes guidance from a professional—you can avoid the most frequent pitfalls. Here are some to watch for:

1. Overlooking investment income

Wages, bonuses, and self-employment earnings get reported to the IRS automatically, but so does investment income. Even a small dividend or capital gain over $10 generates a 1099 form. If you forget to include it, the IRS will send you a notice, often with added penalties.

A common misconception is that reinvested dividends aren’t taxable until you sell. In fact, distributions are taxable in the year you receive them, whether you take them as cash or reinvest them.

2. Selling investments too soon

The length of time you hold an investment matters. Selling after a year or less creates a short-term capital gain, which is taxed at your ordinary income rate. Hold longer than a year, and the lower long-term capital gains rate applies.

For higher earners, gains may also trigger the additional 3.8% net investment income tax. Understanding holding periods can help you avoid paying more than necessary.

3. Poor recordkeeping

To calculate capital gains or losses, you need accurate cost basis information—the price you originally paid for an investment. While financial institutions often report this, you’re ultimately responsible for tracking and reporting correctly. Sloppy records can lead to errors, extra taxes, or IRS inquiries.

4. Forgetting to use losses

Losses aren’t all bad news. If your net losses exceed your gains, you can deduct up to $3,000 of those losses against ordinary income each year ($1,500 if married filing separately). Any additional losses can be carried forward to future years. Ignoring this strategy means leaving potential savings on the table.

5. Failing to plan before year-end

By the time tax forms arrive in January, it’s too late to make adjustments for the prior year. Monitoring your portfolio before December 31 allows you to pair gains with losses, a process called tax-loss harvesting. Consistent attention throughout the year can prevent surprises and improve efficiency.

6. Falling into wash-sale traps

If you sell an investment at a loss and then buy the same or a “substantially identical” investment within 30 days before or after the sale, the IRS will disallow the loss for that year. Active investors are especially prone to this mistake.

Interestingly, wash-sale rules don’t currently apply to cryptocurrencies, since the IRS treats them as property. This creates unique tax-planning opportunities for digital asset investors.

7. Missing credits and deductions

Tax credits directly reduce what you owe, dollar for dollar, while deductions lower your taxable income. Forgetting either can mean paying much more than necessary.

For example, the Child Tax Credit can shave thousands off your tax bill, while charitable contributions can reduce taxable income significantly if you itemize. Staying informed about available breaks—or working with a professional—helps ensure you claim everything you’re entitled to.

8. Ignoring deadlines

Some tax-saving moves, like 401(k) contributions or mortgage interest deductions, must be in place by December 31. Others—such as IRA or HSA contributions—can be made up until the tax filing deadline. Missing these deadlines could mean losing out on valuable savings opportunities.

The takeaway

Mistakes happen, but most are preventable. Double-checking your return, staying organized, and being proactive with your tax planning can make a big difference. Even with software or professional help, human error is still possible—so a second look is always worth the effort.

Think of tax season not just as a chore, but as a chance to evaluate your finances and uncover opportunities to save. Every dollar you avoid in taxes is one more you can put toward your future goals.

Sources:

https://www.fidelity.com/learning-center/personal-finance/tax-pitfalls

Disclosure:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your