More than two in five Ohio taxpayers prepare their own federal tax returns, and many fail to claim credits and deductions they qualify for that would result in heftier refunds, according to IRS data and tax professionals.
Millions of U.S. taxpayers each year make math mistakes on their returns, which can lead either to smaller refunds or larger tax bills, the IRS said. Also, many Ohioans who are eligible for refundable tax credits fail to take them.
Across the country, taxpayers who prepare their own returns are missing out on getting more than a $1 billion back in refunds because of inaccuracies and oversights on their forms, according to a recent study of 2012 tax returns by H&R Block, the world’s largest consumer tax services provider.
Federal tax law is complex, and taxpayers should carefully weigh their filing options to make sure they are getting all the money to which they are entitled, experts said.
“Tax laws are so complicated and changing from year-to-year, and maybe people don’t have experience doing their taxes and so it’s difficult for them,” said John Bennett, spokesman for Community Action Partnership of the Greater Dayton Area, which provides free tax preparation assistance to income-eligible residents. “That’s why we encourage some people to take it to a professional preparer or a service like ours.”
Don’t forget to carry the one
Earlier this month, H&R Block launched a multi-platform marketing campaign called “Get Your Billion Back America.”
The campaign centers on a study the company conducted that found one in five self-prepared tax returns contained inaccuracies that resulted in taxpayers “leaving money on the table.” H&R Block estimates these missteps cost taxpayers more than $1 billion for tax year 2012. H&R Block said it helps prepare one in six U.S. tax returns, and it employs more than 88,000 professional tax preparers and also sells tax-preparation software.
Mistakes on tax returns can be costly, and in 2012, the IRS caught 2.7 million math mistakes on individual federal income tax returns.
Some people put a decimal in the wrong place. Some taxpayers make computing errors when calculating income. Some people record an incorrect amount of taxable Social Security benefits.
In addition to miscalculations, people also make other significant errors, such as using the wrong filing status, said Merri Bush, a senior tax adviser at the H&R Block in Englewood.
There are five filing statuses: Single, married filing jointly, married filing separately, head of household and qualifying widow with dependent child.
The standard deduction is different for each filing status, and selecting the wrong one can result in people paying taxes on more income than they must, Bush said.
“If you file the wrong status, you will not be taxed accurately,” she said.
People also can misread the tax tables or report income in the wrong places on the forms. Or they seek exemptions but fail to include their dependents’ Social Security Numbers or personal identification numbers. Some eligible tax filers overlook higher education credits for which they qualify.
“There are actually three different (education) benefits they can choose from, so getting the right one that is best for each taxpayer is not as easy as it seems,” Bush said.
Taxpayers may be able to deduct qualified education expenses for themselves or their spouses or dependents. Some taxpayers are eligible for the lifetime learning credit, which can help parents and students pay for post-secondary education. The American Opportunity Credit can be worth as much as $2,500 per year per student to help pay for college expenses.
“One thing we hear from our clients and notice is first and foremost they want their tax returns done right, they want them done correctly and they want them to be accurate,” said Gene King, a spokesman for H&R Block, which is headquartered in Kansas City, Mo. “Second is the want to make sure they get the largest refund that they are legally due.”
Many filers make mistakes figuring their Earned Income Tax Credit, Child and Dependent Care Credit and the standard deduction
Another common mistake is that many Ohioans do not realize they are eligible for the Earned Income Tax Credit, which was created to benefit low- to moderate-income working people and their families by reducing how much they owe in federal taxes, experts said.
The credit can also result in a refund if the credit exceeds the amount of taxes owed, and the average credit was about $2,200 in 2012.
The IRS estimates that about one in five taxpayers who are eligible for the Earned Income Tax Credit fail to claim it.
In tax year 2011, about 27.9 eligible million U.S. tax returns claimed the tax credit, resulting in almost $63 billion in refunds, IRS data show. The same year, about 989,730 Ohio taxpayers claimed the earned income credit.
In tax year 2012, about 110,718 tax returns claimed the credit that were filed in Butler, Darke Greene, Miami, Montgomery, Preble and Warren counties, the IRS said.
Using tax software
But if the IRS estimates are correct, millions of U.S. taxpayers who are eligible for the credit are failing to claim it, including many in Ohio.
The tax code is thousands of pages long and there are changes to it every year, and most people need help with their taxes, experts said.
“Doing taxes gets more complicated every year,” said Scott Wiley, president and CEO of the Ohio Society of CPAs, which represents 21,000 certified public accountants and accounting professionals.
About 60 percent of U.S. taxpayers hire paid preparers to handle their returns, and another 30 percent rely on commercial software for filing, according to the Taxpayer Advocate Service, an IRS watchdog.
Using computer software and using e-filing reduces the likelihood of making errors. Taxpayers are about 20 times more likely to make a mistake on their return if they file a paper return instead of e-filing their return, the IRS said.
About 26 million U.S. tax returns were filed last year using TurboTax.
“We are very confident in the accuracy and completeness of TurboTax returns,” said Julie Miller, spokeswoman for Intuit Inc., which owns TurboTax. “We have 100 percent accuracy guarantees, and we have a maximum refund guarantee, so it is not our experience that TurboTax customers are leaving money on the table.”
Hiring a tax preparer can be expensive, and many people want to save money by doing their own taxes, especially considering the technology is so easy to use, Miller said. Tax preparation services also sometimes charge additional fees when customers seek certain tax credits.
“I think the H&R Block ads are about creating fear and uncertainty for consumers, and telling you and me that you aren’t smart enough to do it yourself,” she said. “But TurboTax takes the opposite side of the argument, and says, ‘We do believe in you, and think that you are more than capable of doing your taxes yourself.’”
The IRS said people who decide to use a paid preparer need to choose wisely.
The agency urges taxpayers to check the preparer’s qualifications and work history, and evaluate their fees and make sure the preparer signs the proper form and includes his or her preparer tax identification number.
$1 billion: Estimated refunds not collected by taxpayers who prepare their own returns due to inaccuracies and oversights.
- 2.7 million: Number of math mistakes on individual federal income tax returns caught by the IRS.
110,718: Number of taxpayers in Butler, Darke Greene, Miami, Montgomery, Preble and Warren counties who claimed the Earned Income Tax Credit
$2,200: U.S. average of Earned Income Tax Credit received by individual taxpayers.