Common Deduction And Credit Errors

Making errors in deductions and credits can ultimately result in having to pay back taxes. Additionally, after the filing deadline, any taxes owed will be compounded by penalties and interest. In order to avoid an IRS issue, taxpayers should avoid deduction and credit errors, such as:

Claiming Charitable Contributions

A large number of taxpayers deduct charitable contributions on their returns. Only contributions to charities that are eligible to be deducted should be considered. To avoid making a deduction for a non-qualifying charity, use the IRS Exempt Organizations Select Check Tool.

Home Office Deduction

Self-employed individuals can deduct costs for the business use of their homes. This deduction is available to both homeowners and renters. To claim this deduction, you need to be using the business portion of your home exclusively for work. If you are using a home office for a hobby, you should not take the deduction. Additionally, only certain business expenses are deductible. Claiming invalid expenses or taking the deduction when you do not qualify for it can lead to back taxes and/or an audit.

Claiming Dependents

Parents can claim their children as dependents on their returns to save more in taxes. Not all children, however, can be claimed as dependents. A qualifying child must be younger than 19 years of age. A student that is younger than 24 years old is also eligible. And there is no age limit for children who are permanently and totally disabled. Apart from the age restriction, there are many other qualifying factors that need to be met. Taxpayers may use this IRS test to see who they can claim as a dependent.

Deducting Property Taxes For The Wrong Year

Many homeowners make the mistake of claiming a deduction for the wrong year. Property taxes are to be deducted in the year you paid them. Even if you are billed a year ahead, you need to take the deduction for the year in which you made the payment.

Energy Tax Credits

If you installed energy-saving equipment in your home, you can claim the energy tax credit of 10%, up to a maximum of $500. To claim this deduction, you need to use Form 5695, Residential Energy Credits. Keep in mind, this form is complicated and often causes taxpayers to make mistakes. To avoid errors, carefully read the instructions or seek assistance from a tax professional.