Overlooked deductions cost taxpayers millions
Published 9:00 pm Wednesday, April 10, 2002
By Curt Anderson
Associated Press
WASHINGTON — Note to taxpayers scurrying to meet Monday’s filing deadline: Failure to itemize deductions is costing people nearly $1 billion in overpaid income taxes.
Overlooked mortgage interest and points, charitable contributions and state and local income taxes and property taxes were not taken into account on as many as 2.2 million returns in 1998, according to the General Accounting Office.
Those taxpayers took the more straightforward standard deduction even though they would have been able to deduct even more had they itemized. This cost taxpayers at least $948 million in overpaid taxes — and half of those returns were prepared by a professional.
The GAO study, requested by House Majority Leader Dick Armey, was to be released Thursday. In a statement Wednesday, Armey said the report serves as a warning to taxpayers.
"The last thing people should have to do is pay more taxes than they owe," said Armey, R-Texas.
Tax law allows people to take the standard deduction or to itemize deductions using Internal Revenue Service schedule A, whichever amount is greater. Tax experts say it is best to run a comparison to determine which deduction is most beneficial; the report did not attempt to figure out why people overlooked the potential larger deduction.
Haste is often the biggest problem, said Toni Bardi, a tax professional licensed by the Treasury to represent taxpayers before the IRS.
"One of the big mistakes that people make is that all of a sudden they rush to get their tax returns finished and they aren’t careful in organizing their records so they overlook things," Bardi said.
This year’s standard deduction for most people is $4,550 for an individual, $7,600 for married couples filing jointly and $6,650 for heads of households. The deduction is larger for those over age 65 and those who are blind.
The GAO, which serves as Congress’ investigative arm, estimated that the average overpayment in 1998 from failure to itemize was $438. About a quarter of taxpayers overpaid by more than $500.
Taxpayers who need more time to sort things out can get an automatic extension to file their returns by Aug. 15 by calling the IRS at 888-796-1074. One caveat: Any tax due must still be paid by Monday or interest and late penalty payments will apply.
For up to three previous tax years, people can file an amended return if they think they overpaid. H&R Block, the nation’s largest tax preparation firm, says it has found that one out of 20 returns among 500,000 it recently reviewed should file an amended return.
The most commonly overlooked deductions found by Block: personal property taxes, education expenses, charitable contributions and moving expenses. Not all of those must be claimed via itemized deductions.
Using information from lending institutions and employers for a sample of 1998 returns, the GAO estimated that 948,000 returns failed to itemize deductions for mortgage loan interest and points.
Examining Labor Department averages to measure other types of deductions — charity, state and local taxes and real estate taxes — the potential number of returns that should have included itemized deductions rose to 2.2 million.
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