According to the IRS, only 13.9% of taxpayers itemized deductions in 2019, which is down from 30% of taxpayers in 2018. The IRS found that taxpayers who claimed the standard deduction in 2020 received more than $747 billion in tax deductions, but had they itemized they might have gotten a better deal. Jackson Hewitt Tax Services® wants taxpayers to know there are several credits and deductions available to them that are often overlooked and go unclaimed. For example, 20% of taxpayers that qualified for the Earned Income Tax Credit (EITC) failed to claim it. The EITC can be worth up to $6,600 for qualifying taxpayers.
“While a lot of people chose to take the standard deduction, there are benefits to itemizing, depending on your specific tax situation,” said Mark Steber, Chief Tax Information Officer at Jackson Hewitt. “Don’t waste your time questioning whether you should itemize or not this tax season. Instead, find a trusted Tax Pro to help you with the process and avoid the unnecessary stress.”
Jackson Hewitt is sharing three commonly overlooked credits and deductions that can make a big difference for taxpayers:
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is a refundable federal tax credit for eligible individuals and families who have earned income from employers, small businesses, side jobs, and self-employment. The largest group of people impacted by the EITC are low- to middle-income earners. About one-third of people who qualify for the EITC become eligible each year because of changes in life circumstances – like having hours cut from full-time to part-time at work, being laid off, or having a child. The CARES Act of 2020 allows a taxpayer to “look back” to their 2019 earned income amount to calculate their eligibility for the EITC and additional child tax credits for 2020.
Charitable Donation Deduction
This year, taxpayers don’t have to itemize to deduct charitable donations. According to a recent Jackson Hewitt survey, 74% of taxpayers didn’t know that, even if they don’t itemize, they can take an above-the-line deduction on their 2020 income taxes for their charitable donations in 2020. Under the CARES Act, taxpayers can deduct up to $300 in charitable donations made to IRS approved organizations for the 2020 tax year, even when they take the standard deduction.
Also, due to the CARES Act 2020, taxpayers can deduct their charitable contributions up to 100% of their adjusted gross income (AGI). This means a taxpayer with a $100,000 AGI can donate up to $100,000 and claim the full amount as an itemized deduction on their 2020 tax return.
Student Loan Interest
Paying off student loan debt is tough, but there are some tax advantages when paying off those loans. While the CARES Act suspended student loan payments, paused collection on defaulted student loans, and waived interest on student loans held by the Department of Education, taxpayers are still able to claim a deduction up to $2,500 for interest paid in 2020 on a qualified student loan. Deductions may be lower than usual because taxpayers may have only paid interest before the CARES Act went into effect on March 27, 2020. Taxpayers cannot claim the deduction in any tax year in which another taxpayer claims them as a dependent.