Common tax mistakes leave money on the table

Taxes are supposed to be one of the only things in life that are certain, but taxes can fluctuate. That is because life changes – getting married, having a baby, buying or selling a home, sending a child off to college or retiring – often mean tax changes. Not understanding this fluctuation can lead taxpayers to make mistakes and leave money on the table, potentially impacting their refund at a time when the average refund is about $2,800.


Income changes impact tax outcome
Getting a raise or bonus, facing a pay cut or losing a job happen to everyone. In addition to needing a new household budget, these taxpayers also need to take the tax impact into account. Not only could taxpayers move into higher or lower tax brackets based on their income, but some credits and deductions phase out depending on income.


Using the correct filing status
One of the most common mistakes taxpayers make is selecting the wrong filing status. A taxpayer’s filing status can affect which credits and deductions they’re eligible for, the value of their standard deduction and their tax bracket.

One situation that can make choosing a filing status difficult is when more than one filing status seems to fit. For example, if a taxpayer with children is in the process of getting a divorce, they may not be sure if they should file as married filing jointly or married filing separately or, in some instances, whether they qualify to file as head of household.

Married taxpayers should run the numbers to see if filing jointly or separately is more to their advantage. 


Commonly overlooked credits and deductions
The thousands of changes to the tax code in the past decade make it no surprise some taxpayers miss out on available tax benefits.

Earned Income Tax Credit for lower-income workers
One of the most frequently overlooked tax credits is the Earned Income Tax Credit (EITC): 20 percent of eligible taxpayers do not claim this credit. Depending on their income and the number of children they have, lower-income workers may be eligible for an EITC of $496 to $6,143. Because eligibility can fluctuate based on financial, marital and parental changes, a taxpayer can be ineligible one year and eligible the next. Another reason so many people overlook the EITC is because they may not earn enough money to have to file a return. Because the EITC is a refundable credit, even if an eligible person does not owe taxes, they can still get the EITC.


Education credits
Education credits are another often-overlooked benefit. Depending on the kind of academic program, what year the student is in, income and other restrictions, a student may use the American Opportunity Credit of up to $2,500, the Lifetime Learning Credit of up to $2,000 or the tuition and fees deduction of up to $4,000.

Itemizing deductions


Only one in three taxpayers itemize but millions more should – especially homeowners. Owning a home is often the key that unlocks itemization, but some taxpayers with high state taxes and charitable contributions may also be able to itemize. Itemizing allows taxpayers to deduct qualifying:

-     charitable donations,

-     medical expenses,

-     personal property taxes,

-     real property taxes

-     state income or sales taxes,

-     casualty losses,

-     mortgage interest payments and

-     certain mortgage insurance payment

 

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 $3,400 more than the standard deduction of $6,200. With a marginal tax rate of 25 percent, itemizing saves this taxpayer up to $850.


Common clerical errors taxpayers make

Life and tax changes aren’t the only reasons taxpayers leave money on the table. Taxpayers should double check their tax returns and make sure they haven’t made any clerical errors, like mixing up names and Social Security numbers, forgetting to include information reported on the W-2, 1099 or other forms, transposing numbers and making math errors. 


Reynold Alabre is a Sr. Accountant and a Tax Advisor at H&R Block. He’s the Owner of the Rey Group, and a member of the BRBC in Bridgeport. Rey has been providing expert tax advice and preparation support for taxpayers for over a decade.


Rey Alabre’s contact info is listed below for more information.

Office Address: Bridgeport H&R Block 1375 Madison Ave. Bridgeport CT 06606

Office Phone Number: 203-908-3309

reynold.alabre@hrblock.com