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Financial Planning > Tax Planning > Tax Deductions

What Your Clients Don't Know About Tax Law Changes Can Hurt Them

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Even in normal times, many tax filers scramble to navigate the continually changing tax code. These are not normal times, which only adds to taxpayers’ confusion and anxiety.

A recent survey from TaxAct, which provides online and digital tax software, found that 44% of Americans had made at least one mistake on a tax return at some point in their lives; 57% of men said they had done so, compared with 32% of women.

The survey also uncovered a correlation between the approach individuals take to filing their returns and their tendency to make a mistake.

Thirty-three percent of respondents who always self-file reported that they had made mistakes at least once on their tax return, while 48% of those who rely on others to file their return for them reported a mistake.

Furthermore, 31% of survey participants said confusion over the tax code was a big reason they elected not to file their own taxes. And of those who reported making mistakes on a past return, a surprising 57% described their approach to doing their taxes as “slow and steady.”

Wakefield Research conducted an online survey among 1,000 Americans 18 and older between Feb. 12 and Feb. 19 — one month before the Internal Revenue Service announced the extended tax deadline owing to the coronavirus pandemic.

Sixty-four percent of taxpayers in the survey expressed concern that they were not getting the biggest refund they could.

The survey results indicated why. Ninety-five percent of Americans did not fully understand the changes to tax laws that could directly affect their refund.

Only 46% knew about the recent change to the standard deduction, while just 22% knew that personal exemptions have been eliminated. Many filers were also confused about individual tax deductions, which vary considerably state by state.

Moreover, not one person in the survey — out of 1,000 polled — was able to identify all of the real tax deductions when presented with a list that included both real and imaginary examples.

“The tax game is constantly evolving,” TaxAct’s president Curtis Campbell said in a statement. “Even under normal circumstances, filing a tax return is an emotional event for many people.”

Tax Credits and Deductions

TaxAct said changes to the tax code happen each year, noting that as late as this January, the federal government released a list of credits and deductions that were extended for the 2019 tax year and retroactively extended for the 2018 tax year. Among these were the following:

Residential Mortgage Insurance Premium Deduction

Qualifying taxpayers with an adjusted gross income below $110,000 ($55,000 for married filing separately) can again deduct their private mortgage insurance payments.

Reduction in Medical Expense Deduction Floor

Originally scheduled to go up in 2019, the floor for deducting qualifying medical expenses will instead stay at 7.5% for the 2019 and 2020 tax years.

Deduction of Qualified Tuition and Related Expenses

Certain tax filers can write off up to $4,000 of expenses related to education costs.

Credit for Fuel Cell Vehicles

A federal tax credit of up to $8,000 is available for those who buy qualified passenger (light-duty) fuel cell cars.

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