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March 12, 2003 (ATLANTA, GA) -- Taxpayers often overlook basic income tax deductions and credits which may result in a significant loss in potential tax refunds, according to leading taxation professor Christopher J. Fenn of the Robinson College of Business at Georgia State University. Following is a general overview of seven opportunities for tax savings Prof. Fenn cites as often overlooked by taxpayers who could stand to benefit from them:
1) Charitable Donations - When donating household items, ensure that a reasonable value of each item is entered in the tax form (the Salvation Army can provide a comprehensive list of used property values). When donating shares of appreciated common stock, deduct the current fair-market value rather than the initial cost of the shares. The gain on the donated stock is tax-free.
2) Job Hunting Expenses - Unemployed individuals who incur expenses related to a job search are entitled to deduct much of those costs regardless of whether or not the search is successful. These costs include expenses for travel, professional placement and resume services, newspapers, etc. Expenses are not deductible if an individual is seeking employment in a new trade or business even where employment is secured. Individuals seeking their first job, entering a new trade or business, or working after a long period of unemployment will be denied a deduction.
3) Living Expenses for Parents or Grandparents - Individuals who provide more than half the support for a relative such as their parents or grandparents may be entitled to a $3,000 deduction for each dependent. These conditions should be kept in mind: The dependent canÕt have more than $3,000 of reportable income; Social Security benefits do not count as reportable income; and lodging and medical expenses paid by a taxpayer count toward providing support.
4) Earned Income Tax Credit - Low- and moderate-income workers should be sure to check their eligibility for the earned income tax credit, which is one of the most valuable tax breaks. About 25 percent of households eligible for the credit fail to claim it, according to a recent report by the General Accounting Office, the investigative arm of Congress.
5) Selling Securities from Dividend Reinvestment Plans - Taxpayers who use taxable dividends to purchase additional shares should remember to add the reinvested dividends to the total cost of the securities when computing taxable gain.
6) Roth IRA - Individuals wanting to save for retirement should consider investing in a Roth IRA. Although the contributions are never deductible, the owner of a Roth IRA may have penalty-free access to contributions and accumulated earnings at anytime after a 5-year holding period has been met. The amount of contributions withdrawn from a Roth IRA are always tax-free. On the other hand, the accumulated earnings are tax-free only if the taxpayer is at least 59 _, disabled as of the withdrawal date, or is applying the funds (up to $10,000) for a first-time home purchase. Beneficiaries or estates receiving accumulated earnings from a deceased taxpayer's Roth IRA also escape taxes on the accumulated earnings. The advantages of investing in a Roth IRA may be significant. However, due to their complexity, taxpayers would be well-advised to consult a tax professional before making a Roth IRA investment.
7) Social Security Tax Overpayments - Taxpayers who worked at more than one job in 2002 and had combined W-2 earnings as shown in Box 3 of the W-2s exceeding $84,900, probably overpaid Social Security taxes. This can be checked by adding up the amounts of Social Security tax shown in Box 4 of all the W-2s. Anything above $5,263.80 is an overpayment. The excess amount should be reported on line 65 of Form 1040 in order to receive a dollar-for-dollar reduction in tax liability. The result will be either an increase in the refund amount or a decrease in the amount owed.
"Taxpayers often miss out on qualified deductions or credits when they file their returns," said Prof. Christopher Fenn. "All told, the savings can be quite significant if people have a greater awareness of the deductions, credits and other opportunities available to them." Prof. Fenn notes that tax law has many subtleties and specific requirements and, therefore, advises taxpayers to consult a tax professional before filing their income tax returns.
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The J. Mack Robinson College of Business is one of the nation's top business schools. The College's Flex (part-time) MBA program has been listed in the top ten by U.S. News for the past seven years. BusinessWeek magazine ranked the College's Executive MBA program 20th in the world and Forbes rated Robinson in the top 20 for return on investment for regional schools. Success Magazine ranks the College's entrepreneurship program among the top 50 in the nation. Georgia State University's Robinson College of Business has an enrollment of more than 8000 students and is located in downtown Atlanta.
For more information, contact:
Tammy Demel
Associate Director, Communications and External Affairs
J. Mack Robinson College of Business
Robinson College of Business
404/413-7078
404/702-9743 (cell)
tdemel@gsu.edu
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