Does the idea of filing your tax return make you wait until the last minute? Do you only start gathering your tax documentation at year-end? You aren’t alone.
Every year, taxpayers can fall into “bad tax habits” that seem convenient in the short run but may later lead to significant refund delays or even a dreaded IRS audit. Fortunately, there are simple, strategic shifts you can make right now to kick these bad habits to the curb.
From tracking your “sweat equity” to staying informed through tax podcasts, here are several ways you can avoid common bad tax habits in 2026.
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1. Disorganized tax documents
We’re all disorganized from time to time, especially when it comes to something as mundane as filing income taxes.
But when you don’t keep track of your itemized receipts or fail to maintain proper tax records, you risk filing an inaccurate return, which could lead to lost deductions, expensive penalties, and a higher risk of an IRS audit.
How to kick the “feels poorly organized” tax habit:
- The 15-minute review. Set aside 15 minutes weekly to organize your tax documents. By breaking tax file preparation into smaller chunks, you’ll feel less daunted by the task and more prepared come the April 15th tax deadline.
- Digitize your tax records. Ditch the physical folder for a secure, encrypted cloud database or dedicated tax-scanning app. Most tax software now allows you to upload photos of receipts and other documentation directly from a digital folder.
- “Disaster-proof” your plan. Maintain one or two backup copies of all tax documentation. That way, if a disaster occurs (like hardware failure, fire, or flood), you won’t have to start your tax filing all over again.
2. Waiting until the last minute to file taxes
Are you delaying your filing because you’re convinced you don’t have every single piece of paperwork?
Although waiting for a final 1099 or Form W-2 to arrive in the mail is prudent, procrastinating simply because you can “do it later” is another common bad tax habit. Left unfettered, this practice can lead to filing errors, tax refund delays, and even increase the risk of identity theft, since criminals often file earlier in the season.
How to kick the “wait until the last minute” tax habit:
- Reframe the task. View taxes like you would a medical check-up. This is your opportunity to assess your economic health, ensure your withholding is correct (more on that later), and maximize your tax breaks.
- Remember that you’re beating the fraudsters. Data shows that early filers are significantly less likely to be victims of tax-related identity theft. That’s because the IRS accepts returns on a first-come, first-served basis. So if a criminal steals your Social Security number and files before you, your return could get rejected.
Tax Tip
Never file your income taxes before you have verified that all information is accurate and complete.
Working on your income tax return early can help you avoid costly mistakes.
(Image credit: Getty Images)
3. Accidentally forgetting or misreporting income
According to a recent survey conducted by Finder.com, roughly 33% of Americans with side gigs fail to report that income.*
That’s a problem, considering the IRS receives copies of your 1099s (where side income is often reported), and can tell when an amount isn’t reported. This may result in automatic notices, penalties, and interest owed on the unreported income.
How to kick the “unreported income” tax habit:
- Don’t rely on your memory. Log in to your third-party payment processors (PayPal, Venmo, Uber, etc.) and ensure you’re reporting all your income.
- Go on a tax scavenger hunt. Search places you normally wouldn’t for any spare income you need to report. For instance, you might check your email inbox for keywords like “1099” or “Tax Statement,” or you might scroll through your bank account for unexplained checks, transfers, or deposits.
- Log as you go. Use a simple spreadsheet or app to log every payment that you find during your tax scavenger hunt. By tracking income in real-time, you’ll eliminate the need for a “hunt” next tax year.
See also: 12 Tax Strategies Every Self-Employed Worker Needs in 2026.
*The survey was conducted in 2017 on 2,245 Americans, ages 18 to 88.
4. Mixing personal and business expenses
While we’re on the subject of side gig income, it’s incredibly important to remember that your business and personal expenses should be kept separate. The IRS strictly disallows any personal items to be counted on your federal income tax return.
Consistently failing to keep business and personal finances separate can lead to unclaimed tax breaks, an increased risk of an IRS audit, and even expose a taxpayer’s personal assets to business lawsuits or debts.
How to kick the “mixing personal and business” tax habit:
- Maintain separate accounts. You should have dedicated business accounts for credit cards, banks, and third-party payment processors. These should be different from the ones you use to split dinner checks with friends.
- Pay yourself a “draw.” Don’t use your business account as a personal ATM. Instead, regularly transfer a set amount from your business account to your personal account. This creates a clean “salary” trail to help protect the integrity of your business structure.
- Monthly reconciliation. Set aside time at the end of each month to “reconcile” your accounts — tracking every expense in your business folder. If you see a charge for a hair salon or grocery haul in your business ledger, correct the error immediately.
5. Missing cost basis
For many, the “cost basis” of a stock, cryptocurrency, or piece of real estate may sound confusing, but ignoring this crucial tax topic can be a costly bad habit.
Simply put, the cost basis of an asset is typically the purchase price plus any commissions, fees, or (in the case of your house) home improvements. You use the cost basis to determine your taxable gain or loss when you sell the asset.
Only using the purchase price (and not any of the additional factors) can cause you pay more in capital gains tax when you sell. Basically, you’d pay tax on profit that doesn’t exist.
How to kick the “miscalculated cost basis” tax habit:
- Track your “sweat equity.” Homeowners should maintain a permanent file for new additions and other renovations. These costs increase your basis and can significantly lower your taxable gain if you sell your home.
- Audit your 1099-B and 1099-DA. Don’t assume your brokerage or crypto exchange has the right numbers, especially for assets transferred between platforms. Cross-reference your 1099-B (for stocks) and the new 1099-DA (for digital assets) with your own records.
- Watch your “wash sale” rule. If you sold a stock at a loss but bought a “substantially identical” one within 30 days, your loss is disallowed for now and instead added to the basis of the new stock.
Carefully review your income tax return to ensure you are claiming all eligible tax deductions, credits, and exemptions.
(Image credit: Getty Images)
6. The “same as last year” filing trap
It’s easy to feel overwhelmed by tax law changes, especially this year.
Trapped by choice paralysis, you might think it’s easier to just go with what you did last year and ignore the new tax law changes. However, you could miss out on new tax breaks you might be eligible to claim, resulting in a higher income tax liability than required.
How to kick the “same as last year” tax habit:
- The 20-minute rule scan. Instead of cramming into one weekend what the new tax bill might mean for you, dedicate 20 minutes per week throughout the tax season to read through reputable tax news. Look for any updates that apply to your lifestyle.
- Leverage “smart” newsletters. Subscribe to reputable tax-focused alerts or listen to policy podcasts during your commute. The IRS and state agencies typically ramp up their recent social media presence during tax season.
- Perform a comparison check. Before you hit submit, do a side-by-side comparison of last year’s return with your current draft. If your “other deductions” line looks identical, double-check that you didn’t miss any 2026 tax season updates.
7. Federal tax withholding mistakes
Although a large tax refund may feel like a bonus, getting a big deposit from filing taxes is often the result of another bad tax habit: over-withholding.
Essentially, a big tax refund means you gave the government an interest-free loan of your money, when those funds could’ve been invested elsewhere. Alternatively, withholding too little tax from your paycheck can result in a large, unexpected tax bill at year-end.
How to kick the “fail to optimize withholding” tax habit:
- Use the 2026 estimator. The IRS tax withholding tool allows you to determine how much tax should be withheld from your paycheck. (Though the tool does not yet have all the recent tax policy changes from the new Trump tax law.)
- Look for “life events.” If you got married, had a child, or started a side hustle, you should immediately update your withholding elections with your employer on Form W-4.
- Review your pay stubs. Check your payroll portal regularly to be sure your elections were applied correctly by your employer. You can do this through a quarterly check against your projected 2026 tax liability.
- Aim for zero. The gold standard of tax planning is owe nothing and get nothing back come tax time. This means your money stayed in your pocket all year, where it could earn interest or pay down debt.
See also: W-4 Form: Tax Withholding Tips to Optimize Your Taxes This Year.
Getting better at filing your income tax return
Kicking the seven bad tax habits isn’t just about avoiding an audit — it’s about reclaiming control of your finances during tax time.
Even though the 2026 tax landscape is more complex than it has been in recent years, breaking these bad habits can turn a season of “tax dread” into a manageable, routine check-up.
Start with one habit today, and by the time April 15th rolls around, you won’t just be filing 2025 taxes — you’ll have a head start on next year’s income return.
