Filing your annual income taxes can be a confusing process, especially if you do your own taxes. While tax preparation software has made filing personal income taxes much easier, the programs are only as good as the information entered into to them. If you forget to add in all of the tax deductions and tax credits you are entitled to, it can cost you a considerable amount in additional tax charges and reduce the amount of your income tax refund. Here are some of the most frequently missed tax deductions and tax credits.
The American Opportunity Tax Credit
The American Opportunity Tax Credit is a tax credit for those who are paying for college tuition and associated fees. This tax credit provides a dollar-for-dollar reduction in the taxes you owe based on the amount of money spent paying for college costs. Tax filers get a 100 percent credit for the first $2,000 spent and another 25 percent credit for the next $2,000 spent, for a maximum total of $2,500 in tax credits based on a tax calc. To be eligible, your adjusted gross income must be $80,000 or less if single and $160,000 or less if married and filing jointly.
Retirement Savings Tax Deductions
Many people forget to take the tax deductions that they are eligible for based on their retirement savings. If you contributed to an individual retirement account in 2014, you should qualify for a deduction to give you a break on your current taxes. Your broker should send you paperwork confirming your contributions for the 2014 tax year on IRS Form 5498.
When people 70 or older take their required distributions from their 401k and IRA, they are given the option to have income taxes automatically withheld from the withdrawn funds. If they forget to mark this on their 1040 form, they could end up paying taxes on the withdrawals twice. Look closely at the 1099-R forms to determine whether the taxes have already been paid before filling out the tax forms.
Tax Expense Tax Deductions
Individuals that itemize their income taxes can take a tax deduction for tax related expenses paid for during the tax year, including for tax preparation software, financial advisor fees, and subscriptions to professional publications. These deductions can be taken once they have exceeded 2 percent of your adjusted gross income. Certain investing expenses can be written off as well.
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