Given the complexity of the tax code, it?s not hard to make blunders preparing your income tax returns ? especially since tax law changes from year to year.
To guard against missing valuable deductions, individuals who decide to handle their tax forms themselves could spend some time studying the IRS website, according to Judith Herron, a CPA with the accounting firm Markovitz Dugan & Associates in Pittsburgh. Unfortunately, she said, it won?t take long before the exercise ?doubles as a cure for insomnia.?
While software programs such as Turbo Tax also can help, they aren?t always the best at walking people through complex or nuanced tax decisions, she said.
With that in mind, here are some often overlooked deductions and other tax breaks that experts say may warrant particular attention for the 2014 tax filing season:
?Mortgage interest: With the economy picking up, more homeowners are refinancing or taking out home equity loans to pay for home improvement projects. Normally, any ?points? paid up front on those loans are deductible ? along with mortgage interest ? over the life of the loan. But if the loan is being used specifically for home improvements, generally the points can be deducted all at once, Herron said. ?People miss that,? she said. ?It can really be a nice bump in your deductions.?
?Social Security tax: People who worked for more than one employer last year may have paid too much in Social Security tax. The maximum amount that should have been withheld for the year was $7,254. (That?s equal to 6.2 percent of $117,000 in income, which is the maximum subject to Social Security withholding. The limit rises to $118,500 for 2015.) Any excess paid generally can be claimed as a credit (Form 1040, Line 71). For details, see IRS Publication 17.
?Student loans: Herron said she typically advises clients with children needing a college loan to have the child take out the loan in his or her name. That way, after graduation, the child can take a deduction of up to $2,500 for interest payments, even if the parents are helping to repay the loan.
?It?s the student?s debt, so the student (if no longer a dependent) can deduct the student loan interest,? she said. The deduction is used to calculate adjusted gross income, so there?s no need to itemize.
?Home office: Deducting home office expenses can be a miserable chore. Last tax season, the IRS started allowing a simpler option by calculating the deduction at $5 per square foot (up to 300 square feet), for a maximum deduction of $1,500. While this tax break might be worth revisiting, Herron cautioned against being overzealous.
?There are lots of people who work out of their homes a lot of the time and feel they couldn?t get the job done if they didn?t do that,? she said. ?But that doesn?t mean you qualify? for the deduction. In general, an employee can only take a deduction ?if the employer says you don?t have a place to work and that you must work at home,? Herron said. For more details, see IRS Publication 587.
?Capital gains: When selling stocks or mutual funds, the taxable gain generally is calculated by subtracting the original price paid for the shares from the sales price. But people often forget to include any dividends that were reinvested when calculating the cost of the shares. Adding reinvested dividends raises the cost basis and reduces the taxes owed. ?People forget about this all the time,? Herron said.
?Standard deduction: For filers who don?t itemize, the standard deductions for 2014 rose to $12,400 for those married and filing jointly (up from $12,200), $6,200 for singles and married people filing separately (up from $6,100), and $9,100 for taxpayers filing as head of household (up from $8,950). Taxpayers 65 and older and the blind get an extra $1,200.
Although taking the standard deduction is easier, it?s always a good idea to check whether itemizing would work out better
Source: (TNS)
