Sunday, March 17, 2013

Sometimes Claiming All Your Legal Deductions Can Cost You More #Tax

Most of us are awed by the complexity of even our own seemingly simple tax situations ... Yahoo Finance has an article that has some comfort along with good advice for you:  http://finance.yahoo.com/news/6-tax-terrors-and-how-to-overcome-them-170130521.html

An additional thought:  Try calculating it different ways before deciding on one.  You can often save money, even on the simplest returns.

Here's a recent example I helped with:


A single person came to see me with just two W-2 forms and a donation receipt from a charitable organization.  They were a renter ... so no mortgage interest or property tax, and had just a few medical expenses, and even less of anything else to claim. 

Still, the state income tax withheld from paychecks along with the charitable contribution were enough to be larger than their standard deduction.  Itemizing did increase their federal tax refund.compared with claiming that standard deduction.

Here's where it gets interesting.

They live in a state that requires you to itemize deductions for the state if you itemize on your federal tax return.  Their state likewise requires you to claim the standard deduction if that is what you did on your federal return. 

Because state income tax claimed on the federal return was added back to income on their state return, the result was a larger increase in state tax due than what itemizing saved them on the federal. 

For them they had lower total tax by claiming the standard deduction on both the federal and state returns.  It paid to look at it both ways before hitting the button to e-file their returns.

Yahoo's advice to ask questions and consider your various choices paid off.  Your options are probably different than my example, the point here is to take a deep breath (or several) and carefully look at the options you have.  Most of us do have more than one possible way to legally file our taxes.  Don't wait to the last minute, so you have time to try it one way, then sleep on it and try another.  Often this will save you money.





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