About half of the nation's taxpayers do their own taxes, but not necessarily well.
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, according to a study by tax preparer H&R Block.
"The biggest mistakes today are mistakes of omission," said Mark Steber, Jackson Hewitt's chief tax officer. These often go unchecked by the IRS but are also the ones that will leave you shortchanged. "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," he added.
Some tax-prep software, like TurboTax, should alert you if you are making these tax mistakes, but if you haven't accounted for all of your expenses properly, it's your job alone to catch it before April 18. (The regular tax return filing deadline is April 15. However, due to the Washington D.C. Emancipation Day holiday being observed on April 15 instead of April 16, Tax Day is on the following Monday.)
Go ahead and get started. Here are a few of the most common pitfalls.
— By Jessica Dickler, CNBC.com
Posted 24 February 2016
"Itemizing can save hundreds of dollars in taxes," said Kathy Pickering, executive director of H&R Block's Tax Institute. Still, H&R Block estimates that only about 1 in 3 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.
If you cracked open a textbook in 2015, chances are, there's a tax break for you. 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. (Click here to find out the eligibility requirements.)
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.
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, Pickering said.
If you are self-employed or run a side business, there are likely a slew of expenses that can offset those earnings.
For example, if you run a lawn-mowing business, consider the cost of the lawn mower, depreciation, gas, maintenance and so on. Claiming all of those expenses will be to your benefit at tax time.
Married filing jointly or separately? Choosing the appropriate filing status can be confusing, particularly if your relationship status is also unclear.
Pickering recommends calculating each option that could apply to you in order to see which results in the most favorable tax outcome. If you are married, then married filing jointly usually qualifies you for more tax credits, but that's not always the case, so it's wise to double check.
Don't forget about socking money away for retirement, college or upcoming health-care costs — those contributions could qualify for federal or state tax benefits.
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.
The rules vary by state and income, so check what, if any, contributions will qualify you for a tax deduction or credit.
For example, if you already participate in a 401(k) plan, then the deduction for traditional IRA contributions are phased out at incomes between $61,000 and $71,000. For a married couple filing jointly, where one spouse is covered by an employer-provided retirement plan, deductions for IRA contributions are phased out from $98,000 to $118,000, according to Lisa Greene-Lewis, a CPA and tax expert at TurboTax.
These days, children aren't the only ones who could qualify as dependents, as far as Uncle Sam is concerned.
"In the sandwich generation, children can claim their parents if they are providing support, even if they don't live together," Pickering said.
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.