5 Tax Mistakes That Make the IRS RICH (And You Poor)

Ever feel like you're paying too much in taxes? What if I told you that avoiding just a few common mistakes would save you thousands of dollars this tax season? If I offered you a big box of cash, no strings attached, would you take it? Of course you would. Today I'm challenging myself to maximize tax savings by dodging the biggest pitfalls, and I'll show you exactly how you can do the same. Think of this as your free box of money.

So, taxes. Believe me, nobody likes it. But here's the thing: the IRS, they're not going to remind you about tax breaks that you forget to claim. That's on you. If you make these mistakes, you're just leaving money on the table, or worse, you could end up paying penalties or even triggering an audit. April 15th is getting closer, but there is still time to put these tips to work.

So mistake number one, it's not claiming every deduction and credit. Now the IRS, they offer a ton of deductions and credits, perfectly legal and waiting for you to use them. Many people miss them because they don't know they exist. Here's some of the most frequently overlooked things that I hear from clients all the time.

The earned income tax credit, or EITC. If you qualify, this thing could mean an extra 500 to $7,000 in your pocket, and one in five eligible taxpayers, they don't claim it.

Student loan interest deduction. You can deduct up to $2500 of interest that's paid on student loans even if you don't itemize, and that's why so many people forget that one.

The home office deduction. If you work from home, a portion of your rent or your mortgage, your utilities and your internet, it could be deductible, but most people, they don't realize they qualify for this deduction.

Then we have something called SALT, or the state and local tax deduction. You can deduct up to $10,000 in property taxes and state and local income taxes, and the cap on this particular deduction has been set to expire at the end of 2025. If President Trump gets his way and keeps taxes lower, this SALT cap might stay in place, but next year that cap could be removed.

Then we have a health savings account, or the HSA. If you have a high deductible health plan, those contributions are tax deductible, and this contribution to an HSA really has a triple threat. One, contributions to the HSA, they lower your taxable income. Two, the growth in that HSA, it's all tax-free. Number three, withdrawals for any medical expenses that are qualified, tax-free. Everyone should have it.

Now what's the fix for not missing any of these? First, you need to make a checklist of every deduction and credit that you may qualify for before it's filing time. Use some tax software or a professional so they can help you catch all of these opportunities.

Let's move on to the mistake number two, and that is not maximizing your tax-advantaged accounts. Most people don't contribute enough as it is. Sometimes people go every year and they don't put anything in these tax-deferred retirement accounts, but you should. Here's why maxing out contributions is a game changer.

First, 401k or traditional IRA contributions. Every dollar you put in reduces your taxable income, or at least you get to deduct the contribution. You could save thousands in taxes today while building wealth for your future. Now keep in mind, when I talk about the 401K, it's too late for you to fix that. You had to do that by 12/31 of 2024, but you could certainly be maximizing that in 2025. What you can do is fund your IRA. So let me give you an example here. If you're in the 24% tax bracket, contributing $10,000 to your 401k, that can save you $2400 in taxes immediately.

Then there's Roth IRA contributions, and of course there's no immediate deduction for those, but your money grows tax-free, and all withdrawals when you reach retirement, 100% tax-free.

Then you have something called a backdoor Roth IRA strategy, and if your income, like so many people experience, is too high to contribute directly to a Roth IRA, you can still get in through this backdoor method. So you need to know how it works.

And don't forget, if you're self-employed and you filed an extension on your business return for 2024, you, unlike what I was mentioning a few minutes ago, might still have the opportunity, at least until September, to make a profit sharing contribution. And want to know more about that? Put something in the comments. I'll get back to you and let you know if you qualify for that.

Now what's the fix to making sure you don't miss any of the things we just talked about? First, you want to aim to contribute at least enough to get your employer's full 401K match. That's free money. And if possible, max your IRA contribution and that HSA.

Mistake number three, this one is common. It's messing up your tax filing. So simple filing errors can delay your refund or, worse, trigger IRS scrutiny, and that includes audit, and you don't want that. The most common mistakes: forgetting to report all income. Now the IRS, they already know what you earned. They know that from W2s that are filed, 1099 reports on your investment accounts, etc. If you forget, you can expect a letter from the IRS.

Math errors and typos. Here's another big one that causes a lot of problems. One wrong number can flag your return for review.

Then there's filing the wrong tax status. Choosing married filing separately instead of jointly, that can cost couples thousands of dollars in lost deductions and potential credits. Now there are a few instances where filing separately can make sense. Those are few and far between. Use some tax software to double check your calculations. Compare the two. Does it make sense to go single, or is it better to file jointly? And if you don't have that tax software, or your tax returns are a little more complicated, hire a CPA or a tax preparer so they can help you get the most out of your tax return.

Now mistake number four, it's not keeping proper tax records. The IRS can audit you years later, so sloppy record keeping is a huge mistake, and if you can't prove deductions, they're going to get disallowed. No receipts, no deductions. No mileage log, no business expense. You've got to keep good records. So to avoid this trap, store your records digitally using apps like Everlance for mileage or Expensify for business receipts, or simply get a Google Drive folder. Super cheap fixes, and they work, and they keep you organized.

Mistake number five, it's not planning for taxes year round. Most people, even me sometimes, we get into this rut of thinking about taxes when we get close to April. It's too late at that point to make big savings moves. You got to start early.

First, for high earners, you should be considering quarterly estimated tax payments to avoid penalties. Own a small business or rental property? You need to be planning early. Make sure that you've structured things in the most tax-efficient way. Run it like a business to maximize those tax benefits. And if you're someone maybe in the camp of selling stocks, watch out for capital gains taxes. There's a simple technique, it's called tax loss harvesting. Done correctly, you can offset sometimes all of the gains, lower your tax bill, and still enjoy great appreciation in your account.

Now my advice to fix these potential traps: it's work with a tax planner before the end of the year to maximize savings strategies. You've got to know what you're trying to accomplish in order to do it, and you've got to start planning well in advance if you want to take advantage of all of the things that the IRS makes available to you.

Taxes don't have to be painful, but making these mistakes, they can cost you big time. Check every deduction and credit that you qualify for, max out those tax-advantaged accounts, file carefully, and don't forget to keep those solid records. Plan ahead, not just in April.

So which of these mistakes have you made, or what questions do you have? Let me know in the comments. And if you found this helpful, don't forget to like and subscribe for more content. It will save you money. Thanks for watching, and I'll see you next time on We're Talking Money.