The 5 Most Popular Tax Deductions

Income Tax Deductions
The 5 Most Popular Tax Deductions

The 5 Most Popular Tax Deductions: Do You Qualify for Them

Just less than one in three taxpayers claim itemized deductions on their tax returns, with the vast majority choosing instead simply to take the standard deduction, according to the latest available IRS figures, from the 2012 tax year. Yet that still means that more than 46 million returns include itemized-deduction statements, and the figures reveal the several key deductions that more Americans rely on than any other tax breaks available. Let’s take a look at the five most popular tax deductions and whether you can qualify for them.

5. Tax Preparation Fees

More than 21.7 million taxpayers claimed itemized deductions for tax preparation fees. The total deductions claimed totaled up to $7.2 billion, or an average of about $330 per taxpayer.

That number might seem low, especially given how many people need to get tax help. Yet the thing to remember is that your ability to deduct tax preparation fees and other miscellaneous deductions is limited. Unless those deductions add up to more than 2 percent of your adjusted gross income, you can’t deduct a penny — and even if the amount is greater, you can only deduct whatever the excess is over that 2 percent figure. As a result, despite its popularity, many people who pay for tax preparation find themselves unable to take advantage of this deduction.

4. Home Mortgage Interest

One of the most important deductions available to homeowners is the mortgage interest deduction, which allows you to write off the interest portion of your mortgage payments on your tax return. More than 34.3 million taxpayers reported mortgage interest on which their lenders had provided information, and another 1.2 million deducted interest despite having no documentation from their lenders. The total amount claimed was the highest of any deduction, with taxpayers writing off more than $326 billion.

Interestingly, that figure comes even as mortgage rates remain near record lows. In past years, when mortgage rates were higher, the mortgage interest deduction was an even more important part of reducing your tax liability. Some have called for a limit to the mortgage interest deduction, but given the policy interest in encouraging homeownership, it would take draconian measures to get rid of this highly popular deduction.

3. Gifts to Charity

Americans are well known for their charitable giving, and more than 37.3 million taxpayers deducted a total of nearly $200 billion. More than 90 percent of the taxpayers who claimed charitable deductions listed cash gifts, while 60 percent made gifts other than by cash or check, which includes donations of things like clothes or vehicles. Gifts of cash and checks made up about three-quarters of the total value of the charitable donations, but that still leaves a substantial amount for non-cash gifts. Many nonprofit organizations rely on the tax breaks from charitable giving to spur donations, and that makes it a popular tax break not just for taxpayers but also for charities as well.

2. Property Taxes on Real Estate

Moving back to homeowners, not every property has a mortgage, but just about every piece of real estate carries taxes. That led 39.2 million taxpayers to deduct their real-estate taxes, with total deductions amounting to $173.3 billion.

Taxpayers are allowed to deduct real estate taxes on any property owned, including not only your primary residence but also vacation homes and even open land in your possession. Note that your deduction is based on the amount you actually pay in any given year, so in some cases, paying taxes earlier than they’re due can actually boost your deductions in one year at the expense of reducing them in other years. That strategy can help you take advantage of the standard deduction and boost your overall write-offs half the time.

1. State and Local Income and Sales Taxes

The most-often-taken deduction is for state and local income and sales taxes. About 43.9 million taxpayers, or 95 percent of all those who file for itemized deductions, took this deduction, amounting to a total of nearly $300 billion.

Historically, taxpayers used to be able to deduct only state and local income taxes. But in part due to the efforts of lawmakers in states that impose no income tax, the rules changed to allow taxpayers to choose to deduct sales taxes instead of income tax. Still, even though a quarter of all returns claim sales tax deductions, the amounts involved heavily favor the income-tax side, with total deducted amounts of $283 billion for state and local income taxes versus just $16.5 billion for sales taxes.

IRS Aims Harder to Protect You Against Identity Theft

Protect against Identity Theft
IRS doing more to protect your ID

WASHINGTON — A notice from the Internal Revenue Service saying your return won’t be accepted might be your first clue that your identity has been stolen.

“The IRS recognizes the first return submitted under a Social Security number, and usually the identity theft is identified when the second return is filed” under that same number, said Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting, US.

Another clue might be an IRS notice saying you have unreported income. That could happen if someone steals your Social Security number and gives it to an employer to avoid being taxed on earned wages. You get the tax bill instead.

Identity theft could lead to long delays in getting your refund or bigger tax bills for unreported income. “Tax refund fraud associated with identity theft continues to be an evolving threat, one that imposes a serious financial and emotional toll on honest taxpayers and threatens the integrity of the tax administration system,” the Government Accountability Office said in a report in August.

236,000 Returns Linked to Identity Theft in 2014

More than 236,000 tax returns processed last year were deemed fraudulent because of identity theft, and nearly $1.2 billion in refunds from those fraudulent returns were blocked, according to the Treasury Inspector General for Tax Administration. The number of identity-theft returns is down significantly from 2012, and the IG said in a report last fall that new filters the IRS put in place to identify the crime may be responsible.

“The IRS is investing in that area,” said Bob Meighan, vice president of consumer advocacy for TurboTax (INTU). “People have to have confidence that the returns that they file are protected and secure,” he said.

The IRS is providing identity-theft victims with a personal identification number to prove who they are when filing tax returns. In 2014, more than 1.2 million of these identity-protection PINs were issued, up from 770,000 the previous year. The agency also has more than doubled the number of workers assigned to identity theft cases since 2011, to about 3,000 in 2014, according to the GAO.

Beginning this year, the number of refunds direct-deposited to a single account is limited to three, another attempt to reduce identity theft. “The fourth and subsequent refunds automatically will convert to a paper refund check and be mailed to the taxpayer,” the IRS said.

National Taxpayer Advocate Nina Olson wants the agency to do more. She has called identity theft “an invasive crime that can have a traumatic emotional impact.” She said early last year that she has called on the IRS to designate a single point of contact, someone who can provide “sensitive, holistic assistance” to an identity-theft victim.

What You Should Do

Kathy Pickering, executive director of the Tax Institute at H&R Block, says prevention is the best defense. Don’t give out your Social Security number or your date of birth, she says.

The IRS also advises people to protect their personal computers and Internet accounts, check their credit reports and avoid giving out personal information over the phone, especially if you didn’t initiate the call.

And beware of phishing attempts — online or over the phone — that seek access to your personal information. “The IRS does not initiate contact with taxpayers by email to request personal or financial information,” the agency said. “This includes any type of electronic communication, such as text messages and social media channels.”

If you get a notice from the IRS that leads you to believe you are an identity-theft victim, the IRS says you should respond immediately. The first step, the agency says, is to complete and submit an Identity Theft Affadavit, Form 14039 at If the issue remains unresolved, taxpayers should contact the Identity Protection Specialized Unit at 800-908-4490.