Not Taking the Right Simple Deductions could 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, the opposite is in fact the case – most US taxpayers don’t take advantage of deductions and overpay. 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 the figures from the IRS, so itemizers aren’t cheating. Most people admit to filing only the standard form out of convenience and 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 has tables that show how much can be deducted, depending on the state you live in and your 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 instance, the sales tax from the purchase of a car, boat or airplane can be added into the amount in the table. State sales tax on home building supplies are also deductible.
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. That said, most taxpayers don’t capitalize on the out of pocket deductions for doing good things. For instance, a cake baked for a church fundraiser is a charitable contribution, and thus the cost of ingredients is 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, that aren’t claimed as dependents, can benefit from help from the parentals. The IRS treats interest paid on a student loan by a parent as money given to the student who then paid the debt. As long as the child isn’t claimed as a dependent, the child deduct the interest on their return.
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