Plenty of Americans get dinged financially by curveballs they don't see coming when filing their taxes. The dynamic and often confusing way the tax code is
structured is the main culprit.
"Every year, changes are made to the tax code and annual renewals of proposed deductions or credits," says Dennis G. Raible, a visiting professor of accounting
at Saint Joseph's University. "Those changes and the complicated nature of the tax code itself can lead taxpayers to miss out on deductions or pay extra money on
taxes because they made key filing mistakes."
Kate Wilson, a 23-year-old Pittsburgh career development writer and recent college graduate, brings up an interesting point on the topic of tax filings, and how
some rules can really trip you up — and cost you money.
For Wilson, the issue was scholarship money and how the IRS treated it at tax time.
"Most colleges bill you for the entire academic year in the fall, so for example, your spring 2014 semester would be billed in the fall of 2013," Wilson says.
"If you receive scholarships, however, they're usually disbursed in halves. So you receive your scholarship for the fall 2013 semester in the fall and your
scholarship for the spring 2014 semester in the spring."
"On your 1098-T tax form, then, it looks like you weren't billed for anything in 2014, and you were simply awarded a surplus sum of money for your scholarship. This
is typically only an issue for graduates because the disparity lies between the academic year and the calendar year," she says.
Colleges aren't usually interested in helping graduates with this nuanced tax issue, Wilson says, so reporting your 1098-T usually results in being made to pay
taxes on the amount you got for your scholarship in the spring of 2014. "As with most tax issues, it's difficult to find clear information on this unless you
consult a professional," she says. "But let's be honest, if you're a recent graduate you're probably not paying to have a professional do your taxes."
Wilson is hardly alone in stumbling over tax quirks and complications.
Take the Affordable Care Act, which can complicate a filing whether you accepted a subsidy or didn't buy health care last year.
"The largest change coming into play this year is the Affordable Care Act," Raible says. "For 75% of taxpayers, this will simply mean checking off a box to
indicate that they are insured. But the remaining 25% will have to determine if they have an exemption or will be responsible for a shared responsibility payment."
Missing deductions can be a curveball too.
Rachel L. Partain, a tax attorney with Caplin & Drysdale in New York City, points out that taxpayers miss out on decent deductions regularly simply because they
don't know the rules.
For example: job search expenses. "A new job search can lead to deductions from expenses such as mailings and mileage, and lodging and meals if your travel for the
primary purpose of conducting your search," she says. Be careful, though. In an audit, the IRS may question these expenses, whether the expenses are eligible for
deduction or have been substantiated. "Make sure to keep receipts and a travel log," she advises.
There are a number of categories of professional fees that may be deductible, too, Partain says. "You may deduct tax preparation fees and the cost of software or
preparation services paid within the year; legal expenses for matters that produce taxable income that relate to the determination, collection or the refund of
any tax, work-related lawsuits; and fees related to investment, tax and financial expenses."
Looking again at tax issues relating to education, Michael Atias, tax director at the Online Trading Academy in King of Prussia, Pa., advises parents to look for
savings in student loan payments. "If the child is no longer claimed as a dependent, he or she can deduct up to $2,500 of student-loan interest paid by the parents
each year," Atias says. "There is no need to itemize this deduction, as it is an adjustment to income." The parents can't claim the interest deduction because
they are not liable for the debt, Atias says.
You can actually deduct the cost of tax preparation on your Schedule A, although many tax filers don't realize it, he adds. "Many taxpayers fail to claim this
annual expense, but it's a legitimate deduction."
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