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.
There are a lot of things people generally overlook when tax season comes up. This is mostly due to impatience and laziness. For example, a lot of people refuse to take the time to go through receipts acquired from the previous year, let alone keep them in the first place. They don’t take the initiative to learn more about tax deductions and discover new ways to get more money back. If people would only dedicate a little of their time to work on what many see as "petty work", they will find that these simple deductions can quickly add up to a large sum of money. And who would say no to more money, especially in today's economy? I know I wouldn't.
Nonetheless, very good post. Thanks for the tips!