News & Trending Tax News

10 Things Almost Every Retiree Gets Wrong When Filing Taxes

A mistake on your tax return could cost you. Find out how to avoid such errors.

By Sarah Sharkey

Edited by Chris Kissell

Updated Feb. 6, 2025

No one wants to accidentally overpay on their tax bill. Getting familiar with common mistakes can help you avoid such costly errors.

A smaller tax bill can help you lower your financial stress. Here are some common retiree tax-filing mistakes to avoid if you want to keep more money out of the government's hands.

Steal this billionaire wealth-building technique

The ultra-rich have also been investing in art from big names like Picasso and Bansky for centuries. And it's for a good reason: Contemporary art prices have outpaced the S&P 500 by 136% over the last 27 years.

A new company called Masterworks is now allowing everyday investors to get in on this type of previously-exclusive investment. You can buy a small slice of $1-$30 million paintings from iconic artists, all without needing any art expertise.

If you have at least $10k to invest and are ready to explore diversifying beyond stocks and bonds,see what Masterworks has on offer. (Hurry, they often sell out!)

Itemizing instead of taking the standard deduction

When you file a tax return, you can choose between taking the standard deduction or itemizing deductions.

In some cases, itemizing deductions makes sense. But if the amount you itemize doesn't exceed the standard deduction, you could be missing out.

Federal tax reform in 2017 dramatically increased the size of the standard deduction. For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly.

Those amounts increase to $15,000 and $30,000in 2025.

If your itemized deductions amount to less than the standard deduction, it's generally a good idea to stick with the latter.

Want to learn how to build wealth like the 1%? Sign up for Worthy to get ideas and advice delivered to your inbox.

Paying taxes on pensions unnecessarily

If you move to a new state, it's important to take a look at the tax rules for your new home.

For example, retirees moving from a state with an income tax to a state with no income tax could accidentally overpay state income taxes on their pension income.

Not reporting QCDs correctly

Retirees of a certain age can take advantage of QCDs, or qualified charitable distributions. A QCD is a tax-efficient way to make contributions to causes you care about.

You aren't eligible to make QCD until you reach at least age 70.5. If you choose to use a QCD, you must report this transaction on your tax return.

As with other distributions from an IRA, you must report a QCD on line 4 of Form 1040. Although it's easy to overlook reporting a QCD, this oversight could increase your tax liabilities.

Get a free stock valued between $5 to $200

Secret: You don't need thousands of dollars to buy thousand-dollar stocks or create a diverse portfolio.

Robinhood offers a method of investing called “fractional shares.” On its own, one share of a single stock could cost a lot of money, making it difficult to diversify. Robinhood allows you to buy pieces of stock instead, so you have the option to build a diverse portfolio quickly.

Let’s say you want to invest $250, as an example.

With that amount, you could build a relatively diverse portfolio with an investment of $50 in a big tech stock, $50 in a retail stock, $50 in an energy stock, $50 in a manufacturing stock, and $50 in a bank.¹ This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice. To get stock reward, new customers need to sign up, get approved, and link their bank account. Stock rewards shares cannot be sold until 3 trading days after the reward is granted and the cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at <a href="https://robinhood.com/us/en/support/articles/open-account-pick-your-stock/">rbnhd.co/freestock</a>. Fractional shares are illiquid outside of Robinhood and are not transferable. Not all securities available through Robinhood are eligible for fractional share orders. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see the Fractional Shares section of our Customer Agreement. Robinhood Gold is offered through Robinhood Financial LLC and is a membership offering premium services available for a fee.

Even better news? Add a Robinhood Gold membership, and you’ll get access to 4.00% (as of 12/27/24) APY² Annual Percentage Yield. Rate valid as of April 12, 2024. To earn interest, a cash balance is needed. If you have a margin balance, there is no cash balance to earn interest. Interest rates for cash sweep and margin investing can change at any time. Fees may reduce interest earnings. on your uninvested cash³ Interest is earned on uninvested cash swept from your brokerage account to partner banks. Partner banks pay interest on your swept cash, minus any fees paid to Robinhood. As of Nov 15, 2023, the Annual Percentage Yield (APY) that you will receive is 1.5%, or 5% for Gold customers. The APY might change at any time at the partner banks' or Robinhood's discretion. Additionally, any fees Robinhood receives may vary and are subject to change. Neither Robinhood Financial LLC nor any of its affiliates are banks. All investments involve risk and loss of principal is possible. Robinhood Financial LLC (member SIPC), is a registered broker dealer. and the ability to buy and sell stocks 24 hours a day, 5 days a week.

Open and fund a Robinhood account and earn up to $200 in stock

Forgetting to take medical deductions

If you have extensive medical bills during the year, don't forget to consider taking the medical deduction.

You are able to deduct medical and dental expenses that exceed 7.5% of your adjusted gross income. Depending on your medical bills, this could represent a significant savings.

Not realizing you might owe capital gains taxes on mutual funds

When you own a mutual fund, you don't always have control over when the underlying assets are sold. Mutual fund managers may make such sales during the course of the year.

You are responsible for paying taxes on the capital gains generated by your mutual fund.

Failing to report tax-free income

Although some income might be considered tax-free, you still have to report it on your tax return.

For example, municipal bond income might be tax-free. But you must report this income on your tax return, even though you won't necessarily have to pay taxes on the gain.

Grow Your $$: 11 brilliant ways to build wealth after 40

Selling stock with 'no basis'

When you sell a stock for more than you bought it for, the process generates a capital gain. You can calculate the capital gain by subtracting the purchase price from the sold price.

For example, if you bought a stock for $1 and sold it for $10, you would have a capital gain of $9.

You'll need to figure out the purchase price to avoid paying more in capital gains tax than necessary. If you sell a stock with a basis of $0, the entire sale price will be taxed as a capital gain.

Until 2011, custodians were not required to track the basis on stocks for their customers. So, this problem can be more common than many think.

Not keeping up with changes to tax law

Tax laws change from year to year. In some cases, a tax law change can significantly impact your tax return.

Staying up to date on changing tax laws allows you to employ smart strategies that help you keep taxes as low as possible. Consider working with a tax professional who can guide you through such changes.

Forgetting about Social Security taxes

Many retirees are unaware that up to 85% of Social Security income can be subject to taxation. Generally, you'll pay more in taxes on your Social Security income as your combined income rises.

Combined income is your adjusted gross income plus nontaxable interest and half your Social Security benefits.

Here is how it works:

Combined income between $25,000 to $34,000 for singles ($32,000 and $44,000 for couples) results in up to 50% of benefits being taxable.
Combined income of more than $34,000 for singles (more than $44,000 for couples) results in up to 85% of benefits being taxable.

Earn up to a $300 bonus and grow your money with up to 3.80% APY

This powerful combination checking + savings account from SoFi® allows you to earn up to a $300 bonus with direct deposit and grow your money with up to 3.80% APY.⁴ New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/2026. See full bonus and annual percentage yield (APY) terms at <a href="http://www.sofi.com/banking#1">sofi.com/banking#1</a>. SoFi Checking and Savings is offered through SoFi Bank, N.A., Member FDIC. SoFi members who enroll in SoFi Plus with Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi Plus members are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of Jan. 24, 2025. There is no minimum balance requirement. Additional information can be found at <a href="http://www.sofi.com/legal/banking-rate-sheet">http://www.sofi.com/legal/banking-rate-sheet</a>. See the SoFi Plus Terms and Conditions at <a href="https://www.sofi.com/terms-of-use/#plus">https://www.sofi.com/terms-of-use/#plus</a>.

This is one of the top accounts we’ve seen, and offers like this can be rare. You work hard, and now it’s time to make your money work for you — with SoFi, you can grow your money with hardly any effort!

SoFi has no account fees⁵ We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at <a href="http://sofi.com/legal/banking-fees/">sofi.com/legal/banking-fees/</a> or overdraft fees⁶ Overdraft Coverage is limited to $50 on debit card purchases only and is an account benefit available to customers with direct deposits of $1,000 or more during the current 30-day Evaluation Period as determined by SoFi Bank, N.A.  The 30-Day Evaluation Period refers to the "Start Date" and "End Date" set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the "30-Day Evaluation Period"). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY.  Members with a prior history of non-repayment of negative balances are ineligible for Overdraft Coverage. and additional FDIC insurance up to $3 million on deposits is available through a seamless network of participating banks.⁷ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/sidpterms">SoFi.com/banking/fdic/sidpterms</a>. See list of participating banks at <a href="http://sofi.com/banking/fdic/participatingbanks">SoFi.com/banking/fdic/participatingbanks</a>. Plus, you can receive your paycheck up to 2 days early.⁸ Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

How to earn up to $300: Sign up and make a direct deposit within the first 25 calendar days of the promotional period, then collect a $300 cash bonus with a direct deposit of $5,000 or more.

SoFi is a Member, FDIC. ⁷ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/sidpterms">SoFi.com/banking/fdic/sidpterms</a>. See list of participating banks at <a href="http://sofi.com/banking/fdic/participatingbanks">SoFi.com/banking/fdic/participatingbanks</a>.

Open your SoFi account and set up direct deposit

Being unaware of free tax-filing assistance

Navigating the tax system can get complicated. If you need help, you might not have to pay for assistance.

Instead, many seniors can tap into free tax filing assistance through the IRS's Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs.

Don't hesitate to take advantage of these free resources if you qualify for them. For this tax season, you generally are eligible for VITA if you make $67,000 or less. You typically must be 60 or older to use TCE.

Bottom line

Whether you are a worker bee or a retiree, your goal when it comes to taxes should be to keep more cash in your wallet.

Carefully filing out your tax forms and leaning on professional help when you need it can help you lower your tax bill. Avoiding the mistakes on this list will also help you hold on to more of your money.

More from FinanceBuzz:

Invest in Paintings by Basquiat, Picasso, Banksy

Masterworks Benefits

Invest in art like a millionaire for a relatively low cost
Art investments have outperformed the S&P 500 by over 131% for 26 years
Purchase shares of artwork by top artists
Hedge against inflation and diversify your portfolio

Visit Masterworks

Author Details

Sarah Sharkey

Sarah Sharkey is a personal finance writer who enjoys diving into the details to help readers make more informed decisions. She covers mortgages, insurance, money management, travel, and more.