For a variety of reasons, many Americans need to file an extension each year. But many still misunderstand what a tax extension really means. Yes, it’s true when you file a tax extension you get an additional 6 months to file your tax return; however, in the rush of filing taxes late, many of those same people may miss valuable tax deductions which can reduce their taxable income.
Don’t let your tax extension cost you more. Take a look at some of the most commonly missed tax deductions by extension filers.
‘Out of Pocket’ or ‘Noncash’ Charitable Contributions
Even if you’re in a rush, it’s hard to forget about those larger monetary charitable contributions. They usually leave a pretty obvious paper trail. But what about those smaller contributions made with your pocket change, your miles driven in service to a charitable organization (14 cents per mile in 2022) , or by donating goods and services to local charities and non-profit organizations? When you’re already past the April tax deadline and you’re in a rush to file your taxes, it’s easy to forget to take the time to add up all of the small stuff.
Many extension filers admit to caring more about filing before October vs. making sure they get every single deduction. Don’t forget, adding up the small stuff can make a huge impact!
State and Local Sales Tax
The State and Local Sales Tax deduction is a tax deduction that gives you the opportunity to choose between deducting state and local income taxes on large purchases or state income taxes. If you live in a state with no income tax (South Dakota, Washington, Alaska, Texas, Nevada, Florida, Tennessee, New Hampshire, and Wyoming) then this is your chance to deduct state and local sales tax since you won’t have any state income taxes to deduct. Even if you pay state taxes your state and local sales tax paid on large purchases may outweigh your state taxes giving you a bigger tax deduction.
Student Loan Interest
While federal student loan payments have been on pause. Typically, if you made student loan payments on qualified student loans, the interest portion up to $2,500 may be tax deductible. You can even deduct your student loan interest if your parents are making your payments as long as they are not claiming you as a dependent. According to the IRS, the payments may be looked at as a financial gift from your parents.
Earned Income Tax Credit
Figures from the IRS show that more than 25% of eligible tax filers forget to claim the Earned Income Tax Credit. Many people aren’t aware that they qualify. According to the IRS, on average, households that claimed the EITC last year claimed a credit of about $2,043. When you sit down to file your taxes don’t forget to claim the Earned Income Tax Credit if you are eligible.
Don’t worry about missing these valuable tax deductions and credits. TurboTax will ask you simple questions and give you the tax deductions and credits you deserve based on your answers.