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Don’t Make These Costly Tax Mistakes

by Matthew Person on March 16, 2016

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About half of the nation’s taxpayers do their own taxes because they think it will save them money. The truth is that do-it-yourselfers often leave money on the table because they don’t fully understand tax law and miss many opportunities to lower their overall tax bill. From choosing the wrong filing status to not itemizing, many filers leave about $400 on the table, on average, by not claiming all the credits and deductions they could take. The IRS’s primary job is to make sure that you paid all your taxes, not that you got all the benefits you are due. At Person Huff CPA, our job IS to make sure you get all the credits and deductions you are entitled to take, ensuring that you are paying the lowest possible tax. Here are some of the common mistakes people made by people who self-file:

  1. Not Itemizing. Itemizing can save hundreds of dollars in taxes. Only about 1/3 of taxpayers itemize, although millions more should, particularly homeowners. For example, homeowners can deduct mortgage interest, premiums paid for mortgage insurance and interest up to $100,000 borrowed on a home-equity loan or line of credit. As a general rule, if you have deductions that add up to more than the standard deductions (that’s $6,300 if you are single or $12,600 for a married couple filing jointly), then you should be itemizing on your return. And it’s pretty easy to hit those levels if you own a house.
  2. Forgetting Education Expenses. College students or those enrolled in their first four years of higher education are eligible for the American Opportunity Credit, which is currently as much as $2,500 per student for eligible expenses. Beyond those first four years, anyone at any age who took an enrichment course to improve their job prospects can claim the Lifetime Learning Credit on their federal income-tax return. That credit is 20 percent of the first $10,000 of eligible expenses to a maximum of $2,000, and it applies to tuition, enrollment fees and any required books or supplies for just about any post-secondary course.
  3. Self-Employment Expenses. If you are self-employed or run a side business, there are likely a slew of expenses that can offset your income. Not claiming all appropriate expenses to offset income on a Schedule C or failing to claim income properly on a Schedule C is one of the most common mistakes made by those who self-file.
  4. Choosing the Wrong Filing Status. Choosing the appropriate filing status can be confusing, particularly if your relationship status is also unclear. If you are married, then married filing jointly usually qualifies you for more tax credits, but that’s not always the case. We cover this topic in depth in another article, “Tax Advice For Couples“.
  5. Using Savings to Pay Less Tax. Many people don’t realize that they can make a contribution to a health savings account, retirement account, like an IRA, or college savings account, like a 529 plan, and deduct a portion of that amount.
  6. Dependents Aren’t Just Children. If you are providing more than half of the financial support to care for an elderly parent, which easily adds up if you are paying their monthly rent and a few other expenses, then you are entitled to claim them as a dependent and deduct up to $4,000 on your federal return.

Having your taxes professionally prepared will save you far more than it costs. If you are ready to stop leaving money on the table, contact us today for your FREE tax analysis. We’ll review last year’s return and identify all of the missed opportunities to lower your tax bill this year!

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