Too many tax exemptions may mean you owe money to the IRS.
The last thing anyone wants is to find out that the IRS is billing them for a couple of grand or that they owe a penalty. It is better to overpay and receive a return than pay too little and have another bill that burdens you. If you are worried about having too many exemptions at the last minute, you are better off overpaying money to the IRS. Otherwise, the penalty will come back at an interest rate of .5% per month of non-payment. That could lead to further problems such as a freeze placed on bank accounts until the IRS receives their money.
Here are some common ways that you can take too many exemptions:
- Having more than one person claim a single dependent can lead to severe complications for you. If you have a child and are no longer in a relationship with the child’s other parent, keep the lines of communication open. Before taking the exemption, make sure that they are not taking the exemption unless they pay more than half of the child’s expenses. Come to a decision beforehand with the child’s other parent. Keep in mind that you can discuss these legal matters with a lawyer or your local social services if the child lives with you.
- Medical bills can be exempt unless it is cosmetic surgery or medical bills other than your dependent’s bills. The amount paid must exceed 7.5% of the total income.
- A commonly forgotten tax exemption is the Education tax exemption. The maximum deduction is $4000 as of 2017. The maximum is said to drop as incomes rise. Be sure to keep up to date with tax laws regarding education. If you are receiving American Opportunity and Lifetime Learning credits this year, keep up with IRS publication 970 to ensure these statutes do not change.
- If you own property in places like Florida and Texas, make sure to check the validity of the Homestead tax for your community. Let’s say you are claiming another home. You may not be able to accept this homestead exemption. Divorcees need to know that only one person can receive the exemption.
Anytime a significant life event takes place, reevaluate all-important exemptions. Ensure that you give your tax representative enough time to go through and check all exemptions. Go to someone with plenty of experience who will be thorough and has experi