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3:11 PM / Saturday August 8, 2020

15 Apr 2016

Three common tax mistakes that could cost you

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April 15, 2016 Category: Color Of Money Posted by:

BPT

Tax season is in full swing, and according to the IRS, Americans often leave more than a billion dollars on the table in unclaimed refunds.

With the average refund hovering at $2,800, ensure you get back your maximum refund and avoid these common filing mistakes this tax season.

1. Using an incorrect filing status.

When filing your taxes, you may be confused about whether your filing status is single, married filing jointly, married filing separately, or head of household. Your filing status affects a few things: what kind of credits and deductions you might be eligible for, your tax bracket, and the value of your standard deduction.

Filing status is a grey area for a lot of filers who are married and may fall into multiple categories. If you’re legally married and going through a divorce, you could potentially file as married filing jointly, married filing separately, or head of household. You can’t file as head of household if you and your spouse lived together at any point in the last six months of the tax year. In fact, the head of household filing status might be the one that causes the most headaches.

Confused about which filing status applies to you? Consulting with an experienced  professional tax preparer can help set you on the right course. They can help determine if you qualify for a filing status that is more to your advantage.

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2. Taking the standard deduction instead

of itemizing.

Only one in three taxpayers itemize their deductions, but millions may be missing out on the benefits.

Often times, home ownership is a life change that helps taxpayers move from taking the standard deduction to itemizing. Itemizing your deduction allows taxpayers to deduct qualifying charitable donations, medical expenses, state income or sales tax, and employee business expenses, among others. Itemizing can save taxpayers hundreds of dollars. For example, if a single taxpayer pays $9,600 in mortgage interest, property taxes and charitable donations, that is $3,300 more than the standard deduction of $6,300. With a marginal tax rate of 25 percent, itemizing saves this taxpayer up to $825.

3. Forgetting to claim the Earned Income Tax Credit.

The Earned Income Tax Credit (EITC) is a tax benefit for lower-income workers. The IRS estimates 20 percent of those eligible for the EITC fail to claim the credit on their taxes. In fact, many overlook the EITC because they may not earn enough money to have to file a return, but because the EITC is a refundable credit, those who do not owe taxes can still be eligible to receive this credit.

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