Could you be one of the millions of taxpayers who overpay their income taxes each year? Of course not, right? Who would do such a thing?
You’d be surprised.
According to a study conducted by the General Accounting Office, 2.2 million taxpayers overpay their taxes by nearly $1 billion, and they all make the same mistake. They choose to take the standard deduction when they would actually save money by itemizing their deductions.
Itemizing vs. Standard Deductions
The standard deduction is Uncle Sam’s way of giving everyone a tax freebie. Depending on your filing status, married filing jointly, single, head of household, etc., you can automatically subtract up to $12,200 from your taxable income. Fast. Easy. Done. Right?
Not so fast. You also have the option to itemize and deduct certain expenses, and for many taxpayers, that can add up to much more than the standard deduction. Itemizable expenses include mortgage interest, state income or local sales tax, real estate taxes, medical expenses, unreimbursed employer expenses, and charitable donations. Itemizing is more of a hassle, but as you can see, taking the easy way doesn’t always pay off.
Give Yourself a Chance
The GAO study didn’t even look at all the potential itemizable deductions. It only considered mortgage interest, state income tax or local sales tax (you can’t deduct both), and charitable contributions to calculate whether or not taxpayers made the right choice to itemize or take the standard deduction.
By ignoring just these three deductions, 2.2 million taxpayers paid more income taxes than they had to. Don’t follow in their footsteps. At least take the time to estimate whether these three deductions can save you money before you take the standard deduction.
Get Your Money Back
Is it possible that you’ve made this mistake on past years’ income taxes? Here’s some great news! You can amend tax returns for up to three years after the original filing date. So you can go all the way back to 2011 and check for any money you missed.
You’ll need to file Form 1040X which will allow you to cancel out your standard deduction and list all the deductions you should have taken. Remember though, you’ll need records to back up these deductions.
Get a Tax Pro’s Advice Before You File
Whether you decide to amend past returns or you simply want to be thorough when you file your taxes this year, a tax professional can give you the guidance you need to claim every deduction you qualify for.
Dave’s tax Endorsed Local Providers (ELPs) are qualified tax professionals you can trust to get your taxes done right the first time. Simply contact your ELP today to see if you can save money on your taxes this year.