Common tax mistakes leave $1 billion on the table
The IRS recently announced it has $1 billion in unclaimed tax refunds. And that is just from 2013 for taxpayers who did not file a tax return. That is an expensive mistake. Taxpayers may be able to claim refunds of income tax that was over-withheld or qualify for a refundable credit like the earned income credit. The good news is that taxpayers have until April 18 to file or amend a 2013 tax return to claim a refund.
Other mistakes taxpayers should watch out for include using the wrong filing status, making clerical errors and overlooking important credits and deductions.
Choosing a filing status
One of the most common mistakes taxpayers make is selecting the wrong filing status. A taxpayer’s filing status can affect which credits and deductions they’re eligible for, the value of their standard deduction and their tax bracket.
One situation that can make choosing a filing status difficult is when more than one filing status seems to fit. For example, if a taxpayer with children is in the process of 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.
Common clerical errors taxpayers make
Taxpayers should double check their tax returns and make sure they haven’t made any clerical errors, like mixing up names and Social Security numbers, forgetting to include information reported on the W-2, 1099 or other forms, transposing numbers and making math errors.
Commonly overlooked credits and deductions
The thousands of changes to the tax code in the past decade make it no surprise some taxpayers miss out on available tax benefits.
Earned Income Tax Credit for lower-income workers
One of the most frequently overlooked tax credits is the Earned Income Tax Credit (EITC): 20 percent of eligible taxpayers do not claim this credit. Depending on their income and the number of children they have, lower-income workers may be eligible for an EITC of $506 to $6,269.
Because eligibility can fluctuate based on financial, marital and parental changes, a taxpayer can be ineligible one year and eligible the next. Another reason so many people overlook the EITC is because they may not earn enough money to have to file a return. The EITC is a refundable credit, so even if an eligible person does not owe taxes, they can still get the EITC.
Education credits are another often-overlooked benefit. Depending on the kind of academic program, what year the student is in, income and other restrictions, a student may use the American Opportunity Credit of up to $2,500 or the Lifetime Learning Credit of up to $2,000. Taxpayers who paid tuition and fees in 2016 may be able to deduct up to $4,000.
Only about 50 million taxpayers itemize even though millions more should – especially many of the 86 million 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 allows taxpayers to deduct qualifying:
- charitable donations,
- medical expenses,
- personal property taxes,
- real property taxes,
- state income or sales taxes,
- casualty losses,
- mortgage interest payments and
- certain 2016 mortgage insurance payments.
Itemizing can save taxpayers hundreds of dollars. For example, if a single taxpayer pays $9,600 in mortgage interest, property taxes and charitable donations, that is $3,300 more than the standard deduction of $6,300. With a marginal tax rate of 25 percent, itemizing saves this taxpayer up to $825.
Take a second look at old tax returns
Taxpayers have until April 18 to claim a refund for 2013. With H&R Block’s free Second Look, taxpayers can have their 2013, 2014, 2015 and 2016 tax returns reviewed to see if they made any tax mistakes that left money on the table. Taxpayers can see if a Second Look is right for them with a free online assessment and schedule an appointment online or by calling 1-800-HRBLOCK.
Here are 10 tax tips taxpayers can use, whether they’re just starting to think about their 2017 tax return or they’re putting the final touches on their tax plan.
There are several commonly overlooked tax benefits you can claim. Make sure you read up on them so you don't end up leaving money on table with your tax refund.
Education tax benefits for students and their parents can save both money