Overlooking Simple Deductions can cost Taxpayers

Most taxpayers are honest

The vast majority of American taxpayers are honest when it comes to filing and paying their taxes. The million dollar tax cheats are very rare. Instead of taking advantage of the system, it is actually the opposite that is true; most Americans do not take advantage of legitimate deductions and overpay on their taxes. The IRS reports that taxpayers tend to make the same mistakes each year. The number one mistake on returns every year is forgetting to include a social security number on the return. Luckily, this will only cost the taxpayer time and not money.

Convenience can be costly

Approximately 85 million taxpayers choose to take standard deductions as opposed to itemizing their tax returns. Only 46 million people itemize their returns. The smaller group of taxpayers actually claims twice the amount of deductions as the larger group. Itemized returns account for one trillion dollars worth of deductions while standard deductions only account for a half trillion dollars in deductions. Only legitimate deductions are included in these numbers from the IRS, so the itemizers are not cheating. Sadly, most people admit they file the standard form out of convenience and a lack of documentation. This convenience and lack of proper record keeping could be costing some taxpayers to pay four times their rightful tax obligation.

State sales tax most overlooked

Everyone is entitled to claim state sales tax they paid during the course of a tax year. The IRS provides tables showing how much can be deducted for each state based on income. The biggest advantage is for those people living in states that do not have a state income tax, but everyone can benefit from this deduction. In addition, there are items that can give a tax payer a bigger deduction than what the tables show. For example, if a boat, car, or airplane was purchased, that sales tax can be added to the amount shown in the table. State sales tax paid on home building supplies are also added to the table.

Giving could get you a deduction

Most tax payers already take the appropriate deductions for contributing to charitable organizations in the form of money. Taxpayers deduct money they contributed to religious groups, homeless shelters, etc. However, most taxpayers overlook the out-of-pocket deductions available for doing good works. For example, if you bake a cake for a church fundraiser, the cost of the ingredients is tax deductible. In addition, the taxpayer can claim 14 cents per mile for delivering the item.

Children benefit from Mom and Dad’s help

Interest paid is a common deduction. Most people know to deduct interest paid on mortgages and student loans. College students and graduates not claimed as a dependent can benefit from Mom and Dad’s help. The IRS treats the interest paid on a student loan by a parent as money given to the student first, who then paid the debt. As long as the child is not claimed as a dependent by the parent, the child can claim the interest as a deduction on his/her tax return.

Other recent posts by bryanh