Most taxpayers do claim their exemptions, and according to the IRS, $842 billion was claimed from personal exemptions in 2005. But there are many other tax credits available that may be overlooked.

“Do I choose to take the standard deduction or itemize?” That’s an important question many taxpayers will need to ask themselves prior to filing their tax return. In 2007, the standard deduction was $5,350 for single, $7,850 for head of household, and $10,700 for married or filing jointly.

However, in 2002, only one-third of taxpayers who filed their returns chose to itemize their deductions, according to the Government Accountability Office (GAO). The decision not to itemize turned out to be an on average loss of $438 per taxpayer, or in overall terms – $945 million.

Procrastination is the most common reason for not itemizing. Taxpayers are notorious for waiting until the very last possible hour to file their taxes. This overwhelming rush to complete their tax filing has many taxpayers losing out on the additional tax breaks that may be available to them by itemizing. Taking the time to collect tax records and the information needed for itemized deductions is well worth the time and effort.

For most taxpayers, electing to take the standard deduction or itemizing deductions can be fairly simple. Add up your real estate taxes, income taxes (state and local), and whatever mortgage interest you’ve paid. Now, compare this total against the standard deduction. If you are over 65, don’t forget that you can add an additional $1,050 if you’re married and $1,300 if you are filing single, to your standard deduction.

Many taxpayers make the mistake of not filing an itemized return, thinking that because they don’t own a home it won’t provide any significant tax break by itemizing. However, if you have had substantial medical bills, paid trustee or investment advice fees, made large donations to charity, paid substantial state sales or income tax, or had other substantial qualifying expenses, you may be pleasantly surprised to find your tax deductions work out to be far greater when itemizing than by using the standard deduction.

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Tax preparers may start being tougher in asking you to prove your entitlement to certain deductions. This is because a law was recently passed that requires these professionals to help weed out tax dodgers. This may result in increased paperwork and greater fees to some taxpayers since a longer amount of time will be required for preparing many returns.

Tax preparers now rely on different standards thanks to the IRS. This change is supposed to encourage preparers to be more careful about agreeing to sign returns with shady or extreme income tax deductions without warning the IRS of such behaviors through a specialized communication form. 

Preparers may also face high penalties, especially if they are preparing returns involving estate or gift taxes, or employment or excise taxes. They also are scrutinized highly when preparing returns for organizations that claim tax-exempt status.

Taxpayers must understand the changes in the rules relating to these topics. Preparers now cannot offer advice without being very careful to ensure that they are aware of all details of the situation, or they can be penalized.

For this reason, preparers may decline to sign the tax return unless taxpayers provide better documentation than they have in past years. In some cases, preparers may decline to file the return at all.

Tax preparation fees could also increase in some situations. This is because preparers may need more time to research the complex tax requirements that are increasingly being imposed by the government.

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Predatory Lending

Overall, this predatory lending practice is estimated to cost Americans as a whole about 500 million dollars a year.  Unfortunately poor people tend to be affected the most because they have a greater need to get their money as fast as they can.  Those targeted most tend to be recipients of EITC, the Earned Income Tax Credit.  They recently accounted for 55% or refund anticipation loans. The program, formed in 1975 to help low wage workers is being undermined by tax preparation services that are eating away at these refunds.  Refunds that are being awarded based on the EITC cornerstone that qualifiers for EITC get most of the federal taxes refunded at an attempt to relieve poverty for hard working people.

It seems silly to many of us that someone would pay as much as $218 out of a $760 dollar tax refund to get their money in 1-2 days instead of only 10 days when filing electronically directly with the IRS.  But many of us don’t understand the desperation so many people feel when they are trying to make ends meet on a low income. 

Tax Education 

People need to be educated that they don’t have to be giving up their money in the first place.  Employers will let workers change their W-4 forms to adjust their withholding to more closely match their tax responsibility.  That way, people aren’t paying out their wages in taxes throughout the year unnecessarily in the first place.  People also need to be educated that electronic filing is free for many people now and with direct deposit it only takes about 10 days to get a refund. 

Tax Help

If your financial life is difficult its important to weigh the benefits and drawbacks of getting money fast vs. getting more money by waiting only 8-9 more days.  Free filing is available to those who qualify using the criteria that can be found at www.irs.gov.  Tax help from the Volunteer Income Tax Assistance program is available for people with incomes less than $35,000.  VITA can be reached at 800‑829‑1040 with sites around the country.  Keep what is yours – don’t let H&R Block or Jackson Hewitt keep part of your hard-earned income.  Explore your options and be patient – it might save you a couple hundred dollars or more.

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