Common Mistakes on 2025 Tax Returns and How to Avoid Them

Now that we are well into the 2025 tax season, many taxpayers assume their returns are accurate simply because they filed on time. After reviewing more than 100+ prior year tax returns prepared by other accounting firms or self-prepared using TurboTax or FreeTaxUSA, we are seeing the same costly mistakes repeated over and over.

These errors can lead to higher tax bills, missed deductions, penalties, and unnecessary audit risk. Below are the most common tax mistakes we are seeing on 2025 tax returns and how to avoid them.

If you are unsure whether any of these apply to you, visit wiggscpa.com to learn how our team can help.

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Missing Depreciation on Rental Real Estate

One of the biggest tax advantages of owning rental property is depreciation. Unfortunately, this is also one of the most commonly missed deductions.

Depreciation allows real estate investors to write off the cost of an investment property over time due to wear and tear. Residential rental property is depreciated over 27.5 years.

For example, if you purchase a three flat in Chicago for $550,000, you may be eligible for an annual depreciation deduction of approximately $20,000 without spending any additional money.

After deducting mortgage interest, property taxes, repairs, landscaping, and management fees, depreciation often becomes the final piece that offsets taxable rental income. When structured properly, this can significantly reduce or even eliminate taxes on rental income.

Many investors miss depreciation entirely, especially when filing their own taxes or working with an inexperienced preparer.

You can read more directly from the IRS here:
https://www.irs.gov/publications/p527
https://www.irs.gov/publications/p946

If you own rental property and are unsure whether depreciation was handled correctly, this is one of the first areas we review at Wiggs CPA Tax and Accounting.

Misunderstanding the No Tax on Overtime Rules

One of the most discussed provisions of the One Big Beautiful Bill passed in 2025 was no tax on tips and no tax on overtime. While the concept is appealing, there is widespread confusion about how the rule actually works.

No tax on overtime does not apply to one hundred percent of overtime wages.

There are deduction caps and income phaseouts:

• Married filing jointly deduction capped at $25,000
• Single filers capped at $12,500
• Phaseout begins at $300,000 for married filers
• Phaseout begins at $150,000 for single filers

Additionally, only the overtime premium is eligible. If your normal hourly rate is $20 and your overtime rate is $30, only the additional $10 qualifies as tax free income.

For 2026, employers will be required to report this directly on W-2s. For 2025, reporting is less clear, which increases audit risk if handled incorrectly.

At WiggsCPA, we request final December 2025 paystubs and reconcile year end payroll reports to properly calculate the overtime deduction and reduce red flags.

Missing the Trump Account Credit

A new free $1,000 investment opportunity is available for eligible children born between 2025 and 2028.

The Trump Account allows families to receive government funded savings to help build long term financial security for their children. To qualify, taxpayers must complete Form 4547 with their tax return.

If Form 4547 is missed, the credit is lost.

Many taxpayers are unaware of this form or forget to check the required box. This is a simple step, but it must be handled correctly to secure the benefit.

Learn more about this strategy and other family focused tax planning opportunities at wiggscpa.com.

Filing the Wrong Business Tax Return

Another common mistake we see involves business owners filing the incorrect tax return for their entity type.

If you own an LLC, you should always confirm how the business is classified for tax purposes. This information can be found in your Articles of Organization or Articles of Incorporation and verified through your state’s Secretary of State website.

In many cases, clients believe they are operating as a sole proprietor when the entity is actually registered as a partnership or corporation. Each structure requires a different tax form and has different filing deadlines.

Filing the wrong return can trigger penalties. For S-Corps and partnerships, penalties can reach $245 per partner per month even if there was no business activity.

This is one of the most expensive mistakes business owners make.

Overlooking Common Business Deductions

Business owners also frequently miss deductible expenses that add up quickly over the year.

Commonly missed deductions include:

• Phone expenses
• Internet
• Business mileage
• Education and certifications
• Meals
• Home office expenses
• Travel

If an expense is ordinary and necessary to operate your business or incurred with the intent to generate income, it is likely deductible. Once you become a business owner, many personal expenses shift into legitimate business deductions when tracked properly.

How Wiggs CPA Tax and Accounting Can Help

The biggest tax most people pay is the tax of not knowing.

At Wiggs CPA Tax and Accounting, we help clients navigate tax season even when everything is not perfectly organized yet. Our proactive approach helps identify missed deductions, correct filing errors, and reduce audit risk.

We specialize in working with:

• Business owners
• Real estate investors
• Independent contractors
• Individuals with complex tax situations

Book a call today:
https://calendly.com/wiggscpa

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Thanks for reading and see you in the next blog post.

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