Making sure you get every cent coming to you can take a lot of time and effort, and Better Business Bureau wants taxpayers to be aware of some commonly missed tax breaks that could translate into more money for you this spring.
The IRS refunded more than $235 million to individual taxpayers in 2007, but they should have refunded even more. Many Americans miss important tax deductions and credits every year, meaning they actually paid too much in taxes. According to the most recent estimates from the General Accounting Office, more than 500,000 taxpayers overpaid by an average of $610 in one year alone because they failed to itemize deductions.
Every year taxpayers leave money on the table by not claiming important deductions and credits. The goods news is, if taxpayers missed out on a big deduction or credit in the last few years, they can still file an amended tax return and reap the benefits. If the deduction is more than three years old, they're out of luck.
The two main ways to reduce the amount of taxes owed are through credits and deductions. A tax credit reduces the amount of income tax owed, while a deduction reduces the amount of income subject to tax. Therefore, tax credits definitely have a bigger impact on most consumers' bottom line. The following are commonly missed tax credits and deductions that the BBB doesn't want people to miss out on this year:
EDUCATION PAYS. Two major deductions include up to $4,000 per student for tuition and fees, and up to $2,500 per return for interest paid on student loans. For more information, go to www.irs.gov/publications/p970.
SAVE THE ENVIRONMENT AND SAVE SOME CASH. There are many credits people can take advantage of if they made energy-saving improvements on their homes in 2007. If they have installed energy-saving windows, doors, insulation, or made other home improvements, consumers could qualify for a credit of up to $500. Also, if they bought or leased a hybrid car in 2007, consumers might be eligible for a tax credit of $250-$3,400. For more information, go to www.energystar.gov.
CHARITABLE DONATIONS ADD UP. Clothes or furniture donated to charity are commonly overlooked good deeds that translate into deductions. Consumers should make sure donations are to organizations that qualify as tax-exempt with the IRS and keep an itemized list -- even photos -- of donated items to document their fair market value. Donors also don't want to forget to get a receipt from the charity in case of a tax return audit. For more information, go to www.irs.gov/pub/irs-pdf/p526.pdf.
HOMEOWNER PERK FOR 2007. Consumers who bought mortgage insurance for a home loan in 2007 might be able to deduct premiums. If they qualify -- depending on a couple of factors, including income level -- the value of insurance premiums is treated as deductible mortgage interest. For more information, go to www.irs.gov/formspubs/article/0,,id=177977,00.html.
CASUALTY DEDUCTIONS. Floods, fires and tornados took their toll on the U.S. last year, and taxpayers who live in federally declared disaster areas might be able to claim losses on their tax return. For more information, go to www.fema.gov.
INVESTING AND TAX PLANNING . Money spent for investing or tax planning is deductible as a miscellaneous itemized expense if it exceeds 2 percent of adjusted gross income. This includes broker fees, investment publications and even long-distance calls to brokers.
SAVER'S TAX CREDIT. Low and moderate-income families that made a contribution toward a retirement plan are eligible for a tax credit amounting to as much as 50 percent of the first $2,000 invested. That means paying as much as $1,000 less in taxes. For more information, go to www.irs.gov/newsroom/article/0,,id=172969,00.html.
OUT-OF-POCKET JOB EXPENSES. Some costs related to jobs that aren't reimbursed by employers can count as tax deductions. This includes noncommuting travel expenses, uniforms, union dues and continuing education courses.
CHILDCARE CREDIT. For consumers who pay for childcare while working, or for those who pay for someone to take care of a spouse or other dependent who is not able to take care of themselves, a tax credit might be possible. For more information, go to www.irs.gov/publications/p503/ar02.html.
EARNED INCOME TAX CREDIT. The Earned Income Tax Credit helps low- and moderate-income working families. The amount of the credit is dependent on income and number of children. Not only is there a federal Earned Income Tax Credit, but many states offer a similar credit. For more information, go to www.irs.gov/publications/p503/ar02.html.
FOR MORE TAX advice you can trust and take to the bank, and to take the new BBB Money Manager Quiz, visit www.bbb.org.
Kelvin Collins is the president and CEO of the Better Business Bureau of Central Georgia & the CSRA Inc. Refer questions or complaints about a company or charity to to (800) 763-4222 or firstname.lastname@example.org.