Experts Share the Most Commonly Missed Tax Credits
Tax season is upon us once again, and whether you expect to get a refund or cut a check, most Americans aren’t especially fond of filing their tax returns. According to research, 56 percent of people hate or dislike doing their taxes, while 34 percent like it or love it – largely because they’re looking forward to receiving a refund. Another 4 in 10 feel they’re paying more than their fair share in taxes.
Many of these filers might feel differently about doing their taxes if they knew how much more they could be saving. As it turns out, there are plenty of missed opportunities for claiming tax credits or deductions, which can mean paying more than you need to or receiving a smaller refund than you deserve. We asked 50 experts in tax preparation and accounting about the most common tax return mistakes or omissions that leave money on the table. Continue reading to find out more about the deductions and credits you could be entitled to claim this year, and consult with your tax advisor before filing if you have any questions.
Which Deductions Are Missed the Most?
According to the experts, the most frequently omitted deductions are, by far, related to one’s job. Many filers may not realize it’s possible to deduct certain employment expenses if their employer doesn’t reimburse them. These costs must be mandatory and directly related to your line of work, and these itemized deductions can only be claimed if they add up to greater than 2 percent of your adjusted gross income altogether. Work-related expenses that can be claimed may include professional licensing fees and dues, work uniforms, or home offices for those working from home. And while your daily commute isn’t an expense that can be listed, non-routine travel required for work may be a deduction you can claim.
An Examination of Commonly Overlooked Deductions
Following unclaimed work-related expenses, health insurance and medical expenses are deductions that most frequently go unclaimed by filers. Medical expenses can only be claimed if they haven’t been reimbursed and if they amount to greater than 10 percent of your adjusted gross income. For instance, if you paid for treatment or medical equipment that wasn’t covered by your insurance, such as an artificial limb or hearing aid, this can potentially be listed as an itemized expense. Laser vision surgery and treatment for drug or alcohol abuse can also be listed – but note that expenses related to cosmetic surgery cannot be deducted. Additionally, many filers neglect to claim deductions on real estate taxes they’ve paid (which can only be deducted if you own the property in question), as well as deductions for education expenses, such as tuition and fees.
Who Misses Out on These Deductions the Most?
Some filers may be more likely to omit deductions they’re entitled to than others. Those who are married and filing jointly were the most likely to leave out deductions and expenses that could be saving them money. These couples already receive a much larger standard deduction than those filing as single or as married filing separately and may be paying less attention to other deductions they could be claiming. Our experts further noted that individuals were also more likely to miss these deductions than corporations, which tend to have extensive finance-related resources at their disposal. Self-employed filers and those who own their own business were also identified as being more likely to omit deductions than employees who are salaried and do additional freelance work.
Why Are Filers Missing Deductions?
We’d all love to save money on our taxes or look forward to receiving an even larger refund check – so what’s getting in the way? Our experts reported that many crucial deductions and expenses most often go unclaimed by taxpayers because they aren’t utilizing the services of a skilled tax preparer. Millions of Americans opt to do their own taxes each year, but may not be aware of how best to save money when filing. Tax preparation and accounting experts also noted the complexity of tax law as a reason why filers neglect to claim expenses and deductions. Fear of running afoul of the extensive network of tax-related regulations and the unfamiliarity with many of the arcane concepts and terms involved may lead individuals to err on the side of paying more than they truly need to.
Overall, most of our experts (70 percent) said doing your own taxes can ultimately cost you more than having them done by a qualified tax preparer, even taking into account the expenses involved in paying someone to do your taxes for you.
Tax Brackets That Can Benefit the Most From Tax Preparers
On average, about 17 percent of your taxable income can typically be deducted, but certain tax brackets may find more benefit from skilled tax preparers than others. For individual filers, our experts most frequently (37 percent) listed those in the $91,150-$190,150 tax bracket as likely to benefit the most from getting professional assistance with tax preparation. And for those filing jointly, 39 percent of experts said couples with incomes ranging from $75,300 - $151,900 would benefit the most from professional tax help.
Only 5 percent of those surveyed said filers in the lowest income brackets were the most likely to need help with claiming deductions and expenses – low-income filers simply may not have the opportunity to incur substantial expenses that can be claimed. Notably, 20 percent of our experts said that individual or joint filers in the uppermost tax bracket, who may have extensive and complex personal finances and assets, would be the most likely to benefit from professional tax preparation.
Whether you’re living large or modestly, navigating the tangled web of taxes can be a challenge for many of us. And the challenges can be present for individual filers, joint filers, personal returns, and business returns alike.
Owners of small businesses, in particular, may find themselves facing larger-than-average difficulties in managing the payroll requirements for employees and contractors, as well as, working out what can and can’t be claimed in the business' tax filings. That’s why Paychex is here to help.
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