As tax regulations evolve, so do the forms and procedures used to report income, claim deductions, and determine tax liabilities. The IRS has made several updates to Form 1040 for the 2025 and 2026 tax years, aligning it with inflationary adjustments, expanded digital income disclosures, and changes in tax credit eligibility. While these updates are designed to streamline the filing process, they have also led to a rise in avoidable errors. In this comprehensive blog, we explore the most common mistakes taxpayers make when filing the updated Form 1040 and how to prevent them to ensure a smooth, accurate, and penalty-free tax season.
1. Ignoring New Income Reporting Requirements
Starting in 2025, the IRS has expanded its focus on income earned through third-party platforms. With the $600 threshold for Form 1099-K now widely enforced, many gig workers and side hustlers are receiving tax forms for relatively small amounts of income.
Common Error: Failing to report 1099-K or digital income such as payments received via PayPal, Venmo, Cash App, or online marketplaces.
How to Avoid: Keep a log of all digital income throughout the year. Reconcile all 1099-Ks and report business income on Schedule C attached to Form 1040.
2. Misreporting Social Security or Retirement Income
Many retirees incorrectly assume that Social Security benefits are tax-free. In reality, they may be partially taxable depending on combined income levels. Similarly, mistakes often occur when reporting IRA distributions and pension income.
Common Error: Entering total Social Security benefits without calculating the taxable portion; or omitting required minimum distributions (RMDs).
How to Avoid: Use the IRS worksheet for calculating taxable Social Security income and cross-check Forms 1099-R and SSA-1099 with bank deposits and statements.
3. Claiming the Wrong Standard Deduction Amount
The standard deduction amounts are adjusted annually for inflation and vary by filing status and age. For 2025, they have increased again:
- Single: $14,600
- Married Filing Jointly: $29,200
- Head of Household: $21,900
- Additional for seniors (65+): $1,950 (single) or $1,550 (married)
Common Error: Using outdated deduction amounts or not including the age-based additional standard deduction.
How to Avoid: Always refer to the current year’s IRS instructions or use certified tax software that updates automatically.
4. Overlooking the Digital Asset Disclosure
The IRS now requires all filers to answer whether they received, sold, or exchanged digital assets (cryptocurrency, NFTs, etc.). This question is prominently displayed on the updated Form 1040.
Common Error: Failing to check the box or checking the wrong box without understanding the implications.
How to Avoid: If you owned or transacted in digital assets, answer truthfully. Maintain records of crypto wallet transactions, exchanges, and fair market values.
5. Filing with Incorrect or Missing Social Security Numbers
One of the simplest yet most common filing errors is mistyping or omitting a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN).
Common Error: Entering incorrect SSNs for yourself, your spouse, or your dependents. This can disqualify you from key credits like the Child Tax Credit or EITC.
How to Avoid: Double-check all SSNs against Social Security cards. Pay special attention when typing in long forms or using tax prep software.
6. Failing to Reconcile Advance Payments of Premium Tax Credit
If you received advance premium tax credits for health insurance purchased through the Marketplace, you must reconcile these credits using Form 8962.
Common Error: Forgetting to file Form 8962, which may delay your refund or lead to a balance due.
How to Avoid: Have Form 1095-A ready and complete Form 8962 accurately. Use the Marketplace tool to download your annual health coverage statement.
7. Not Reporting Unemployment or State Refunds Properly
Unemployment compensation and state tax refunds are both taxable in many cases and must be reported correctly.
Common Error: Omitting unemployment income reported on Form 1099-G or misreporting a state refund as non-taxable when itemized deductions were claimed the prior year.
How to Avoid: Review Form 1099-G carefully. Use the IRS tax benefit rule to determine if your state refund is taxable this year.
8. Mistakes with the Child Tax Credit and Dependent Eligibility
The Child Tax Credit and Other Dependent Credit rules are complex, especially after several temporary changes. Misunderstanding eligibility can lead to disallowed credits.
Common Error: Claiming a child or dependent who does not meet age, relationship, residency, or support requirements.
How to Avoid: Review the IRS definition of a qualifying child or dependent. Ensure each dependent has a valid SSN and that no one else is claiming them.
9. Incorrectly Calculating Self-Employment Tax
Freelancers and small business owners must file Schedule C and calculate self-employment tax on Schedule SE.
Common Error: Underreporting income, forgetting to include gig earnings, or failing to calculate and pay self-employment tax properly.
How to Avoid: Maintain a digital ledger of income and expenses throughout the year. Use Schedule SE to compute self-employment tax and claim the corresponding deduction on Schedule 1.
10. Failing to Sign and Date the Return
Surprisingly, many returns are rejected or delayed simply because they lack a signature—whether digital or physical.
Common Error: Forgetting to sign a paper return or not completing identity verification when e-filing.
How to Avoid: Double-check all fields before submission. If e-filing, complete identity authentication using your prior-year AGI or IRS-provided PIN.
11. Using Incorrect Bank Information for Direct Deposit
Refunds can be significantly delayed—or misdirected—if banking information is entered incorrectly.
Common Error: Transposing digits in routing or account numbers when requesting direct deposit of refunds.
How to Avoid: Verify your bank information carefully before submission. Consider using IRS’s secure Get My Refund tool to monitor progress.
12. Forgetting to Attach Required Schedules and Forms
While many forms are auto-linked by tax software, those who file manually must remember to include supporting documentation for income, deductions, or credits.
Common Error: Omitting Schedule C, Schedule E, Schedule SE, or Form 8862 (if required to recertify EITC eligibility).
How to Avoid: Review the IRS Form 1040 instructions and cross-check any schedules referenced in your return before filing.
Conclusion: Accuracy is Key in the 2025 & 2026 Filing Seasons
The updated Form 1040 introduces more transparency and automation, but it also places greater responsibility on taxpayers to disclose digital income, accurately claim credits, and maintain compliance with updated tax rules. Avoiding the most common filing mistakes can protect you from delays, penalties, and lost refunds.
Whether you choose to e-file or file on paper, taking a methodical approach to your tax preparation—with current-year IRS guidance, valid documentation, and thorough review—will help ensure your Form 1040 is error-free. When in doubt, consulting a qualified tax preparer or CPA can provide peace of mind and maximize your financial outcomes.
