WASHINGTON – Taxpayers are cheating themselves out of nearly $1 billion in overpaid income taxes simply because they fail to claim itemized deductions.
``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,'' said Toni Bardi, an enrolled agent, which is a tax professional licensed by the Treasury to represent taxpayers before the IRS.
``You should take a minute to think back through the year,'' she said. ``Think about what you did that might be related to a deduction.''
Thing people often are leaving out are mortgage interest and points, charitable contributions and state and local income taxes and property taxes, the congressional General Accounting Office found in a new report. Other itemized deductions are for medical expenses, job expenses, union dues and gambling losses.
In 1998, as many as 2.2 million returns claimed a lower standard tax deduction when they could have qualified for much more if they had only itemized.
House Majority Leader Dick Armey, who requested the GAO report, said it serves as a warning to taxpayers who are scrambling to meet Monday's filing deadline in most of the country. People in parts of the Northeast have an extra day because their IRS center is located in Andover, Mass., where Monday is the annual Patriot's Day holiday.
``The last thing people should have to do is pay more taxes than they owe,'' said Armey, R-Texas, on Wednesday.
In 1998, tens of thousands of taxpayers who took the more straightforward standard deduction paid at least $948 million more in taxes than they should have, the GAO found. That was true even though half of these returns were prepared by tax professionals.
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.
Lower- and middle-income taxpayers were most likely to overlook itemized deductions. An estimated 1.6 million of the returns were filed by people earning under $75,000 a year, with the median income for those returns about $47,000.
Tax law allows people to take the standard deduction or to itemize using IRS 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 didn't attempt to figure out why people overlooked the potential larger itemized deductions.
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 more generous for those over age 65 and those who are blind.
In 1998, about 70 percent of all taxpayers claimed the standard deduction.
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 1-888-796-1074. One caveat: any tax due must be paid by Monday or interest and late penalty payments will apply.
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.