Perhaps the only exciting part of filing taxes is finding out whether you are due for a big tax refund from the IRS. Making sure you get every cent coming to you can take a lot of time and effort, and Better Business Bureau wants taxpayers to be aware of some commonly missed tax breaks that could translate into more money in your wallet this spring.
The IRS refunded more than $235 million to individual taxpayers in 2007. But they should have refunded even more money. Many Americans miss important tax deductions and credits every year, meaning they actually paid too much in taxes. According to the most recent estimates from the General Accounting Office, more than 500,000 taxpayers overpaid their taxes by an average of $610 in one year alone because they failed to itemize deductions.
“Every year taxpayers leave money on the table by not claiming important tax deductions and credits,” said Angie Barnett, president & CEO of BBB | Greater Maryland. “The goods news is, if taxpayers missed out on a big deduction or credit in the last few years, they can still file an amended tax return and reap the benefits. Unfortunately though, if the deduction is more than three years old, they’re out of luck.”
The two main ways to reduce the amount of taxes owed are through tax credits and deductions. A tax credit reduces the amount of income tax owed, while a deduction reduces the amount of income subject to tax. Therefore, tax credits definitely have a bigger impact on most consumers’ bottom line. Following are commonly missed tax credits and deductions that BBB doesn’t want people to miss out on this year:
Two major deductions include up to $4,000 per student for tuition and fees, and up to $2,500 per return for interest paid on student loans. For more information go to: www.irs.gov/publications/p970/
Save the environment and save some cash
There are many tax credits people can take advantage of if they have made energy-saving improvements on their homes in 2007. If they have installed energy saving windows, doors, insulation, or other home improvements, consumers could qualify for a credit of up to $500. Also, if they bought or leased a hybrid car in 2007 consumers might be eligible for a tax credit of $250-$3,400. For more information go to: www.energystar.gov.
Charitable donations add up
Clothes or furniture donated to charity are commonly overlooked good deeds that translate into deductions. Consumers should make sure donations are to organizations that qualify as tax-exempt with the IRS and keep an itemized list – even photos – of donated items to document their fair market value. Donors also don’t want to forget to get a receipt from the charity in case of a tax return audit. For more information go to: www.irs.gov/pub/irs-pdf/p526.pdf
Homeowner perk for 2007
For consumers who bought mortgage insurance for a home loan in 2007, they might be able to deduct premiums. If they qualify – depending upon a couple factors, including income level – the value of insurance premiums is treated as deductible mortgage interest. For more information go to: www.irs.gov/formspubs/article/0,,id=177977,00.html.
Floods, fires and tornados took their toll on the U.S. last year, and for taxpayers living in federally-declared disaster areas, they may be able to claim losses on their tax return. For more information go to: www.fema.gov.
Investing and tax planning
Money spent for investing or tax planning is deductible as a miscellaneous itemized expense if it exceeds 2 percent of adjusted gross income. This includes broker fees, investment publications, and even long distance calls to brokers.
Saver’s tax credit
Low and moderate-income families that made a contribution toward a retirement plan are eligible for a tax credit amounting to as much as 50 percent of the first $2,000 invested. That means paying as much as $1,000 less in taxes. For more information go to: www.irs.gov/newsroom/article/0,,id=172969,00.html
Out-of-pocket job expenses
Some costs related to jobs that aren’t reimbursed by employers can count as tax deductions. This includes non-commuting travel expenses, uniforms, union dues, and continuing education courses.
For consumers who pay for childcare while working, or for those who pay for someone to take care of a spouse or other dependent who is not able to take care of themselves, consumers are likely eligible for a tax credit. For more information go to: www.irs.gov/publications/p503/ar02.html
Earned income tax credit
The Earned Income Tax Credit helps low and moderate-income working families. The amount of the credit is dependent on income and number of children. Not only is there a federal Earned Income Tax Credit, but many states offer a similar credit as well. For more information go to: www.irs.gov/individuals/article/0,,id=130102,00.html.
For more tax advice you can trust and take to the bank, visit www.bbb.org.