Most taxpayers don’t want to pay more taxes than they actually owe. Here are some common mistakes and omissions that cost taxpayers money.
Overlooking education tax credits. Parents of college students may be able to claim the American Opportunity Tax Credit (AOTC) for qualified tuition and related expenses of up to $2,500 for each eligible student. The credit phases out at higher income levels.
Forgetting to report contributions to a traditional individual retirement account (IRA). Contributions to a traditional IRA are tax deductible if you (and your spouse, if you are married) are not eligible to participate in an employer’s retirement plan. With plan participation, certain income limits apply to deductions for IRA contributions.
Not calculating cost basis correctly. For taxable investment accounts, reinvested dividends add to the cost basis of the shares and should be accounted for when calculating any gains. Likewise, any stock splits generally require a basis adjustment.
Forgoing a home office deduction. The IRS has simplified the calculation of the home office deduction. An alternative safe harbor method allows individuals the option of deducting $5 for each square foot of office space (maximum of 300 square feet).
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