I’ve been a tax professional since the 1998 tax season. I have prepared hundreds of tax returns for a variety of clients including strippers, hookers, funeral directors, sperm and egg donors and even ghost busters! Many of the clients I’ve seen over the years have had mistaken ideas about taxes. It’s no wonder. The complexity of the tax code is written on approximately 75,000 pages.
Don’t make the most common mistakes I’ve witnessed over the years:
1) Missed deductions
Charitable contributions
- Don’t forget to claim charitable gifts made through payroll deductions. They sometimes don’t show up on your W-2.
- You can’t deduct the value of your time spent volunteering, but if you buy supplies for a cause, the cost of those materials are deductible as an itemized charitable donation. Also, mileage to the charity event is deductible.
- All types of non-cash donations, from jeans to cars, could be valuable tax deductions, so make sure you count them all when you file. They must be in “good” or better condition and they must be given to qualified organizations (your neighbor who lost everything in a fire doesn’t count). Remember that the amount you can claim for donated goods is what a willing buyer would pay for it in its current condition, not what you paid for it. Generally, I find that taxpayers undervalue non-cash contributions. Use this Goodwill Industries Valuation Sheet. Or, you can use the ItsDeductible Donation Tracker app with built-in valuations. It also provides the convenience of tracking charitable donations throughout the year, (as opposed to finding all of your receipts at tax time).
So clean out your bulging closets and drop off clothing or household goods to your favorite charity!
Medical deductions
Many taxpayers are unable to deduct medical expenses because of the high hurdles: either 7.5% if you or your spouse is over 65 years of age or 10% of adjusted gross income for all of the rest of us. Some who qualify for a deduction—many of them elderly—don’t take full advantage of medical deductions. If you pay for health insurance for yourself, your spouse or a dependent, (including a parent or grandparent), this in itself is usually enough to claim the deduction.
Did you know you can include mileage for trips to doctor’s offices, hospitals, therapists and pharmacies for yourself, your spouse or your dependents? You can and should.
My answer to this common question I’ve been asked is, “No, your fake boobs are not deductible (unless you’re a stripper)”. But a sex-change operation, quitting smoking and losing weight may be. Look it up at the IRS website. You’ll be surprised what is considered a medical deduction.
State Sales Tax
Congress offers itemizers the choice between deducting the state income taxes or state sales taxes they paid. You choose whichever gives you the largest deduction. So if your state doesn’t have an income tax, the sales tax write-off is clearly the way to go. People who live in states that pay state income tax can benefit if they paid more sales tax due to large purchases. My husband and I chose state sales tax the year we bought our travel trailer, for example.
2) Missing the April 15th deadline
If you owe taxes and can’t get your forms finished by April 15th, file for an extension with Form 4868 by the due date. This will give you until October 15th to submit your tax forms. This extension does not extend the date for which you must pay any due taxes, however. Make sure to send any tax you owe with your extension request. If you don’t, you could face late-filing or non-filing penalties. So don’t make the mistake of missing the filing deadline!
3) Dependents
No, your pet and dead-beat son are not dependents, but don’t make the mistake of omitting an eligible dependent exemption.
Many taxpayers stop claiming their child as a dependent once they turn 18 years of age. If that child is a full-time student, under the age of 25, and you provide more than 50% of their support, you can and should claim that child as a dependent and take any education credits that are due, as well.
In general, someone is a dependent if you provide more than half of his or her support—even if that person doesn’t live with you, such as a parent living on his/her own or in a nursing home, or a student who lives away from home.
4) Failing to itemize deductions
This is specifically geared to Kentucky residents. The Kentucky standard deduction is only $2,400, so itemizing is a good idea for lowering your Kentucky State Tax, even if you’re not qualified to itemize on your Federal Tax Return.
5) Withdrawing from a 401K or IRA before the age of 59 ½
Not only is the withdrawn amount subject to income tax, but a 10% penalty will be imposed as well. I understand that desperation sometimes requires withdrawing from a 401K or IRA, but avoid it any way you can.
6) Using an incorrect filing status
Many times divorce decrees determine which parent is allowed to take the dependent exemption for one or more children. If the child(ren) lived with you for more than 6 months you can still file as Head of Household and claim your child(ren) as non-dependents for the purpose of Earned Income Credit.
Another filing status that usually doesn’t help your bottom line refund is “Married Filing Separate”. This filing status generally pays the most tax of all the filing statuses because many deductions and credits are disallowed.
7) The Earned Income Tax Credit (EITC)
The Earned Income Tax Credit is a refundable tax credit given to filers who earn low to moderate income from their jobs. The credit can be worth up to $6,143, depending on your income and how many dependents you have, but many overlook this credit. You must file your taxes to get it, so even if you make less than $10,150 (the minimum income filing requirement for filing status “single”), you should still file your taxes.
8) Not filing
I have seen so many taxpayers choose to not file for many years and lose refunds due them. If you have received refunds in years past, don’t be afraid to file late. You can claim a refund by filing for the past three tax years.
9) Not withholding enough
If you don’t withhold enough, and owe more than $1,000 when you file your return, you will be penalized for underpayment of taxes. Many don’t realize that you can request a waiver of the penalty by using Form 2210.
10) You can amend your tax return
If you forgot something that may give you a bigger refund, you can file a 1040X
and amend your return for up to the past three tax years.
There are 150 million opportunities for us taxpayers to shortchange ourselves. Don’t pay Uncle Sam a penny more than you are required!
