Life changes such as getting married, having a baby, or retiring often come with changes to your tax situation. Overlooking these changes when filing your taxes can lead taxpayers to make mistakes that leave money on the table, potentially impacting their refund at a time when the average refund is about $2,800. Here are some common tax mistakes to avoid:
Using the correct filing status
One of the most common mistakes taxpayers make is selecting the wrong filing status. This can affect which credits and deductions they’re eligible for, the value of their standard deduction and their tax bracket. Choosing a filing status is difficult when more than one filing status fits. For example, if a taxpayer with children is getting a divorce, they may not be sure if they should file as married filing jointly or married filing separately or, in some instances, whether they qualify to file as head of household. In this case, the taxpayers should run the numbers to see if filing jointly or separately is more to their advantage rather than guessing.
Commonly overlooked credits and deductions
Most taxpayers file their taxes using the standard deduction, but you may be eligible for a variety of itemized deductions that could possibly save you more. Also, you may be eligible for “above-the-line” deductions and tax credits, none of which require you to itemize. And it’s important to note that the newly passed tax reform generally does not impact these credits or deductions until next year.
Earned Income Tax Credit for lower-income workers
Twenty percent of eligible taxpayers, particularly lower-income workers, do not claim the Earned Income Tax Credit (EITC). Depending on their income and the number of children they have, these taxpayers may be eligible for an EITC of $503 to $6,242. Since eligibility can fluctuate based on financial, marital and parental status, taxpayers can be ineligible one year and eligible the next.
Depending on your academic program, what year the student is in, income and other restrictions, there are federal tax credits that can help offset the costs of higher education for yourself or your dependents. To qualify, you must pay for post-secondary tuition and fees for yourself, your spouse or your dependent. Depending on the criteria, a student may use the American Opportunity Credit of up to $2,500 or the Lifetime Learning Credit of up to $2,000.
Itemizing can save taxpayers hundreds of dollars, as only one third of taxpayers itemize but millions more should – especially homeowners. Owning a home is often the key that unlocks itemization, but some taxpayers with high state taxes and charitable contributions may also be able to itemize.
Itemizing enables eligible taxpayers to take deductions such as:
* Charitable donations
* Medical expenses that exceed 7.5 percent of adjusted gross income
* Casualty losses such as a fire, hurricane or earthquake
The IRS estimates that about $1 billion annually goes unclaimed in federal tax refunds. Taxpayers who want to ensure they get the maximum refund without a delay should visit hrblock.com to see if you are eligible for a Refund Advance, or make an appointment with a tax professional.
Why it pays to hire a pro
Do-it-yourself culture may be all the rage for home renovations, but when it comes to filing taxes, many people aren’t familiar enough with the laws to do it right.
“It’s like playing Russian Roulette if you prepare your own tax return,” says Salvatore Albanese, a Hicksville-based CPA with more than 40 years of experience. “You’re probably leaving tax dollars on the table…don’t be pound foolish and pennywise.”
Hiring an accountant isn’t only for businesses and people with complicated tax filings. He recommends that individuals and families do the same to not only ensure they get the refund they’re owed — mitigating the cost of hiring a professional — but also to ensure their taxes are filed properly.
You’re on the operating table,” he says. “You want to make sure you have the proper surgeon.”
What’s more, he urges taxpayers to not to wait to the last minute — don’t try to make an appointment April 14 — and make sure to have paperwork in order.
“You should be well organized,” he says. “Make sure that you have at least the same documents that you had the year before to make sure that you don’t leave anything out.”
—Brand Point Media and staff