3 Tax Filing Mistakes That Cost the Average Family Thousands
Mistakes may be proof that you’re trying, but in some situations, you don’t get credit for effort. Like your taxes.
Uncle Sam doesn’t care that you tried, like, really hard to get your taxes right — he cares that you actually did. Even small filing mistakes can end up costing your family thousands of dollars in missed credits, deductions or higher taxes owed.
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That’s why getting your return right the first time matters. But to avoid the most common mistakes, you have to know what they are. To learn more about the filing mistakes that can carry a hefty price tag, MoneyLion enlisted two tax experts: Sherman Standberry, CPA, CEO and managing partner at My CPA Coach, and Eric Croak, CFP, president of Croak Capital.
Not Choosing the Right Credits and Deductions
If Standberry had to pick the most significant mistake he sees among clients, it’s failing to choose the right credits and deductions. This mistake is often rooted in a lack of research — or asking a tax professional for guidance.
“The average family doesn't understand which deductions and credits they qualify for, causing them to overpay the IRS,” he said.
He says that even small errors — like choosing the standard deduction when you’d be better served by the itemized deduction — could have you overpaying by thousands of dollars. People also forget that they can deduct interest on their student loans, effectively reducing their taxable income by up to $2,500 per year, depending on income limits.
Standberry adds that the average family could “easily lose between $5,000 and $10,000 from missing tax credits.”
Some of the most commonly overlooked tax credits for families include the Earned Income Tax Credit, the Child Tax Credit, the Child and Dependent Care Credit and the American Opportunity Tax Credit.
Using the Wrong Filing Status
For Croak, filing status mistakes are among the biggest reasons families lose money at tax time. Your filing status affects not only your tax rate, but also which credits and deductions you’re eligible to claim.
In particular, he sees confusion around who can claim head of household status. You might think that if you’re unmarried, you can’t file as head of household — even if you’ve supported a dependent child all year. Not so.
According to the IRS, you can claim head of household status if:
You’re not married, or you’re considered unmarried on the last day of the year.
You paid more than half the cost of keeping up a home that was your home and the main home of your child for more than half the year.
Your child is your qualifying child for purposes other than claiming the child as a dependent and the Child Tax Credit.
Croak says that filing as head of household instead of single status can save you between $2K and $5K if you’re eligible. To prove his point about the value of claiming this status, he points to tax year 2024.
“Filing head of household gets you a standard deduction of $21,900 versus $14,600 if you file single in 2024,” he said. “That’s $7,300 that won’t be taxed at 22% for head of household filers, saving you $1,606 right there.”
Croak thinks that people file as single when they could claim head of household because it’s easiest on the IRS website, or they incorrectly assume that supporting a child doesn’t count unless they’re married.
Claiming Dependents Incorrectly
Another common — and expensive — mistake is claiming dependents incorrectly, according to Croak. That’s a problem because dependents can unlock valuable credits and tax benefits.
“Just because your son is in college doesn’t mean he isn’t your dependent," he said. If a child is under 24, a full-time student and doesn’t provide more than half of their own support, they may still qualify as your dependent.
Importantly, there is no income limit for a qualifying child, which is where many families get tripped up. Income thresholds apply to qualifying relatives, not qualifying children.
Your children aren’t the only people who may count as dependents. Croak notes that, in some cases, elderly parents also qualify.
“If you provide more than half of your parent’s financial support, you may be able to claim them as a dependent,” he said. “Unlike most dependents, parents don’t have to live with you to qualify.”
You might not even be able to stop your young adult kids from drinking all the juice in the house when they visit or keep your elderly parent from being a practical joker at the senior center, but claiming dependents correctly can help reduce your tax bill.
The Bottom Line
You don’t make these mistakes on purpose — that’s why they’re called mistakes. But they can still cost your family real money.
Being aware of common tax filing errors is the first step toward avoiding them — and keeping more of your hard-earned cash during tax season.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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