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If you’ve ever ventured beyond claiming the standard deduction on your income tax return, you probably realized that taxes can go from simple to complicated in a flash—and that’s just the stuff you know about. What about the questions you don’t even know to ask? Could you be missing out on a bigger refund (or lower tax bill) simply because you don’t know any fancy tax tricks to help you deal with your more technical options?
We asked one of Dave’s tax Endorsed Local Providers (ELPs), and he answered with an absolute yes! Lack of familiarity with tax issues and calculations lead plenty of do-it-yourselfers to make costly mistakes on their tax forms.
So how can you know if you’re missing out? Our tax pro helped us put together a list of the tax errors he encounters most often. If any of these situations apply to you, consult a tax expert you trust to make sure you’re not overpaying your taxes this year. A word of warning: Our list covers some pretty technical ground, but don’t tune out! You never know when something might apply to you.
The Affordable Care Act
“With the Affordable Care Act, there’s no such thing as a simple tax return anymore,” Kevin Stephens, Dave’s tax ELP in Arizona said.
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The Affordable Care Act requires all Americans to have health care coverage either through their employers or by purchasing their own plan. Starting this year, you must indicate on your tax returns whether you and your family had health coverage in 2014. If you don’t meet this individual mandate, you can be fined.
“We have to go through and determine if the client has met the requirements of the individual mandate, and if they haven’t, what does that mean for their tax return?” Kevin explained. “There are a number of exemptions to the mandate that can save people money, but you have to know what those are, how it applies to you and how to document it.”
When tax issues are as new as this one, the only way to be sure you’ve got it right is by working with a tax expert who understands the law and its requirements.
If you itemize your tax return instead of taking the standard deduction, you have the option to claim your state and local income taxes or your state and local sales taxes. For taxpayers who don’t have a state income tax, this is a no-brainer (if you have a state income tax, however, you’ll have to determine which will give you the greatest tax benefit).
So how do you calculate the amount of sales tax you’ve paid throughout the year?
“If you want to, you can actually add up all the sales tax you’ve paid all year long,” Kevin said. “I’ve met about three people in my career who really did that.”
A more realistic option is to use tables provided by the IRS to determine how much sales tax you can claim based on your income, where you live and the number of people in your household. But don’t stop there!
“A lot of people don’t know that you can add to that the sales tax you’ve paid on any major-ticket items like cars, boats, etc.” Kevin said.
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In Tennessee, the sales tax paid on an $8,000 vehicle purchase is about $740. If your marginal tax rate is 15%, claiming that additional sales tax will save you (or boost your refund) more than $100.
“Sometimes people are fairly familiar with federal tax rules, but they are less familiar with state rules,” Kevin said. An example of this is the medical expense deduction.
On your federal taxes, you can only deduct medical expenses that exceed 10% of your adjusted gross income. But many states have a lower threshold, making it easier to deduct more of your medical expenses, Kevin explained.
“In addition to that, many states with income taxes also have some really valuable tax credits that can more than pay for my fee if you make sure you’re taking advantage of them,” he added.
More Stuff to Ask About
Other tax situations are simply too technical to get into here. If you fall into any of these categories (you know who you are) get with a tax pro to see if you can save on your taxes:
- Rental property owners: Track and deduct depreciation on the property, maintenance and repair expenses, mileage to and from the property, etc.
- Self-employed business owners: Deduct the costs of your health insurance premiums.
- Parents or individuals paying for college: Recoup some of the costs with higher education tax credits.
Of course, we could never provide a complete list of all the unique tax situations you could face. There’s only one way to be sure you’re getting everything right: Work with an experienced tax professional with the heart of a teacher like Kevin.
We can help you find a tax expert who has earned Dave’s recommendation for excellent service and advice. Don’t take chances when it comes to your taxes. Let us put you in touch with a pro in your area today!