6 Tax Mistakes You Do Not Know You Are Making

By Traci Barker A&J Accounting & Associates 

 This time of year you can't help but hear ads for tax services. some of them talk about how much money a taxpayer could be giving to the government because they do their own taxes. According to the IRS, individual taxpayers do 75% of the cheating,mostly middle-income earners. Corporations do most of the rest. Cash-intensive businesses and service industry workers from handy man people to doctors are the worst offenders. The IRS claims the waiters and waitresses under-report their cash tips by an average of 84% (NOLO,2013)

Here are some mistakes you just maybe making.

1. Failing to negotiate for exemptions in a divorce decree - tax exemptions can be shared between parents but in the case of divorce, if the decree does not address this issue, the exemptions for children automatically fall to the parent with whom the children live most often.

2. Keeping poor records - Keeping records is a shoe box does not constitute good record keeping. People who are contractors or are self-employed if you do not track your income you may not realize that you are missing a W-2 or a 1099. This would cause you to not report all your income. Unfortunately the IRS usually does not miss those little details which could result in serious penalties and fines later. Not keeping accurate records of your expenses could also cost you in taxes and self-employment taxes.

3. Forgetting to deduct unamortized points when refinancing - for example let's say you pay $1,000 in points when you refinance a mortgage. Typically, you must amortize the points over the life of the loan and can only deduct a portion of the points each year. However, if you refinance and still have $900 in unamortized points left on the original mortgage, you can deduct that entire amount in the year of the refinancing. The points are fully deductible in the year of the home purchase or refinance when the loan proceed are used to entirely to acquire or improve the home.

4. Overlooking important tax credits - many lower income families might miss out on lucrative tax credits simply by not filing. Just because you don;t owe taxes does not mean you do not want to file a return as you might miss out on refundable tax credits like the Earned Income Credit.

5. Improperly calculating the basis for investments - they are either reporting too much capital gains or too little in capital loss. Either way you may be paying too much tax.

6. Skipping itemized deductions - taxpayers who automatically take the standard deduction may be doing themselves a disservice. Expenses that can be itemized include: Medical expenses min excess of 10% of your adjusted gross income, charitable contributions, property taxes, car registration fees based upon a vehicles value, tax preparation fees and mortgage interest. Unemployed individuals need to be aware that expenses related to their job hunt could be deductible.

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