Don’t miss out on these commonly overlooked tax benefits
The tax refund is the single largest financial transaction many taxpayers will have in a year. Refunds average almost $3,000 so far this season. That’s one of the reasons that the stakes are so high and why mistakes can be so costly. Taxpayers who want to claim all the benefits they’re entitled to should review these commonly overlooked tax benefits to make sure they don’t leave any money on the table:
Earned Income Tax Credit
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.
It’s not enough for taxpayers to know about these benefits and claim one if they have eligible expenses. Even if a student meets the general qualifications for more than one of these benefits in the same year, only one benefit can be claimed for that student for the year. Also, some education tax benefits have a one-per-tax return restriction. Therefore, they need to know which benefit gives them the best tax outcome and may need to work through different tax scenarios before determining the best benefit.
Only about 50 million taxpayers itemize deductions 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.
H&R Block studies have shown that when taxpayers prepare their own returns, many of them file with inaccuracies. With H&R Block’s free Second Look, taxpayers can make sure they don’t miss out on the past three refund seasons. Taxpayers who prepared their returns themselves or had others prepare them can visit any of H&R Block’s approximately 10,000 U.S. offices for a free review of the three prior year returns. Those who already filed a 2016 return with someone else can also bring in their 2016 return for the free review.
Education tax benefits for students and their parents can save both money
20 percent of eligible taxpayers do not claim the Earned Income Tax Credit due to the misunderstanding of the requirements which can be proven costly.
The earned income tax credit is one of the nation’s largest anti-poverty programs and an important piece of annual income for millions of Americans.