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10 Common Tax Mistakes Retirees Make (And How You Can Avoid Them)

Retirees often make the same tax mistakes year after year. Here's how to avoid them and keep more of your money.

By Sarah Sharkey

Edited by Chris Kissell

Updated Oct. 21, 2025

Many retirees are surprised by how complicated taxes can get after they stop working. From new deductions to shifting income sources, it's easy to make a mistake that ends up costing you.

If you want to avoid money mistakes and lower your stress come tax season, it's worth knowing which tax traps catch most retirees off guard.

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Itemizing instead of taking the standard deduction

The standard deduction often offers more value than itemizing. After tax reform in 2017, the standard deduction nearly doubled. For 2024, it's $14,600 for single filers and $29,200 for married couples filing jointly. In 2025, those numbers rise to $15,000 and $30,000.

Unless your itemized deductions exceed the standard deduction, sticking with the standard option can save you money.

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Paying taxes on pensions unnecessarily

Some retirees accidentally pay state income taxes on pension income they don't owe. If you move to a state with no income tax but don't update your withholdings or paperwork, you could end up overpaying. Always review tax rules in your new state before the next filing season.

Not reporting QCDs correctly

Qualified charitable distributions (QCDs) allow IRA holders age 70 1/2 or older to donate directly to charities without triggering taxable income. But even though the income is tax-free, it still needs to be reported properly, typically on line 4 of Form 1040. Leaving it out could lead to a larger tax bill.

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Forgetting to take medical deductions

Medical and dental expenses that exceed 7.5% of your adjusted gross income are deductible. If you had a year with unusually high medical costs, take a closer look. This deduction can make a meaningful difference if you qualify.

Not realizing you might owe capital gains taxes on mutual funds

Mutual fund managers can sell assets within the fund, and when they do, it may result in capital gains for you, even if you didn't sell anything yourself. Make sure you review your year-end tax documents closely to avoid an unexpected tax bill.

Failing to report tax-free income

Some types of income may be tax-free, like municipal bond interest, but that doesn't mean you can ignore them. These must still be reported on your tax return, even if no taxes are due. Forgetting to do so could cause issues with the IRS.

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Selling stock with no basis

If you sell stock and can't prove what you paid for it, the IRS may treat the entire sale as a capital gain. That means more taxes than necessary. This is especially common with older investments purchased before 2011, when custodians weren't required to track cost basis. Always keep documentation when possible.

Not keeping up with changes to tax law

Tax rules change often, and retirees are especially vulnerable to missing updates that affect deductions or income limits. Staying informed, or working with a tax pro, can help you take advantage of tax breaks you might otherwise miss.

Forgetting about Social Security taxes

Many retirees don't realize that up to 85% of their Social Security income may be taxable, depending on their total income. For individuals, combined income between $25,000 and $34,000 can make up to 50% taxable. Above $34,000, up to 85% may be taxed. For married couples, the thresholds are $32,000 and $44,000.

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Being unaware of free tax-filing assistance

Filing taxes can feel overwhelming, but free help is available. If your income is $67,000 or less, you may qualify for the IRS's Volunteer Income Tax Assistance (VITA) program. Seniors 60 and older can also use the Tax Counseling for the Elderly (TCE) program.

These programs can help you avoid mistakes and save money.

Bottom line

The goal in retirement should be to stretch your income as far as possible. Avoiding these common tax errors can help you hold onto more of your money and lower your financial stress when filing. Taking time to learn the rules or getting help when you need it can go a long way.

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