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Unless you’re a tax professional or super finance nerd, income tax filing season probably isn’t your favorite time of year. You’d rather get your filing over and done with—hopefully without giving income taxes too much of your time or energy.
Millions of taxpayers feel that way, and as much as we agree with you that taxes are a hassle, we can’t back you up on the faster-is-better approach. Here’s why: A General Accountability Office (GAO) study conducted over several years shows that 2.2 million taxpayers who filed the easy way—by taking the standard deduction—overpaid their taxes by nearly $1 billion!
The Billion-Dollar Mistake
So why do taxpayers give Uncle Sam such a hefty handout? The answer’s simple: Most folks don’t know they’re doing it. They don’t realize that by itemizing their deductions instead of claiming the standard deduction, they could have lowered their tax bills by an average of $438.
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Perhaps you’ve made the same mistake on your taxes. After all, 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 $12,600 from your taxable income.
Fast. Easy. Done. Right?
You also have the option to itemize and deduct certain expenses. For many taxpayers, that can add up to much more than the standard deduction. Here are just a few of the common expenses you can itemize:
- Mortgage interest
- State income tax or local sales tax
- Real estate taxes
- Medical expenses
- Unreimbursed employer expenses
- Charitable donations
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 three deductions, 2.2 million taxpayers paid more income taxes than they had to.
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Itemizing may be more of a hassle, but isn’t it worth it to have more money in your pocket?
Resolve to Get Your Money Back in 2016
If the idea of itemizing deductions makes your head spin, don’t despair! An experienced tax pro can help you make sense of your options so you don’t pay a penny more than you have to this tax season.
But wait . . . there’s more! You can also amend tax returns for up to three years after the original filing date. So if you think you made this mistake on past income tax returns, tell your tax advisor. They can check for any money you may have missed and help you file Form 1040X, which enables you to cancel out your standard deduction and list all the deductions you should have taken. Just make sure you have records to back up these deductions.
Want to know how much money you can save on your taxes this year? We can put you in touch with a tax advisor in your area who’s earned Dave’s seal of trust.