The Internal Revenue Service issued a statement earlier this month that confirmed it issued approximately 48 million refunds in a one-month time span valued at roughly $147 billion. The average refund was worth a little more than $3,000, up three percent from the previous year. More than 40 percent of taxpayers have sent in their returns, but what about the remaining Americans?
It’s likely that the near two-thirds are still waiting for their tax receipts, searching for important documents or delaying the inevitable. Whatever the case, it is estimated that taxpayers lose out on more than $1 billion each year due to inaccuracies in their filings or ignoring the various tax credits and deductions that are available for each person, family and household.
Tax credits and deductions are meant to save households money during tax season. Whether it’s fitness, home renovation or earned income credits, these are usually missed out, especially by those who file their own returns and not soliciting the assistance of an accountant or tax professional.
“In general when people are preparing tax returns themselves, they not equipped to understand all of the changes in the law from year to year," said Gary DuBoff, managing director of accounting and financial planning firm CBIZ MHM, in an interview with U.S. News & World Report.
Finance experts have published various credits and deductions that are omitted in tax returns. Here are five of the most-ignored that Americans could use to lower their tax bill and save some money come Apr. 1.
Earned Income Tax Credit
The federal government implemented the Earned Income Tax Credit (EITC) as a way to assist those who are earning low incomes. This credit is worth up to $6,044 – it does depend how many dependents you have and how much income you earned in the previous year. According to the IRS, about one in five tax filers overlook it.
Preliminary data from the Atlas of Giving, an organization that analyzes economic data to publish statistics, found that charitable contributions by Americans hit $416.5 billion, up 12 percent from the year prior. It marked the third consecutive year of growth in donations.
Although this is good news for philanthropy, the quintessential question is: have you claimed charitable contributions on your taxes? This tax credit can be found in most developed countries and is aimed at encouraging more people to donate their hard earned money to worthwhile causes. By claiming the deduction, you might have a higher refund and more money to donate.
American Opportunity Tax Credit
For working and non-working students: the American Opportunity Tax Credit provides tax relief to students and families who are working to attain a degree in their respective field. In order to offset tuition, fees, textbooks and others costs associated with post-secondary education, taxpayers can deduct up to $4,000 on tax filing for you, your significant other or dependents.
The price of daycare is astronomical. The average cost of center-based daycare in the U.S. is nearly $12,000 per year, but prices do range anywhere from $3,500 to $19,000 annually. This can be a tax deduction, though.
Parents who work and leave their children with a daycare, caregiver, babysitter or nursery school are eligible for a tax credit. The amount does vary based on the percentage of the credit and how old the child is.
One of the most-missed tax deductions are Employee Business Expenses. Employees are permitted to deduct work-related expenses, such as local transportation, business gifts, cards, Internet and phone – this is even more important if you’re self-employed or an independent contractor. However, it’s extremely imperative to maintain in-depth records for each of the expenses you claim.
Aside from tax credits, one piece advice that is always given by tax professionals: file early.
Have you not yet filed your tax return? Share you tips, ideas and concerns in the comment section.