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The Internal Revenue Service recently released its preliminary statistics from the 2014 tax year, which showed that a total of 148,686,586 tax returns were filed, with an average adjusted gross income of $65,020. Included in the information are statistics on certain deductions, credits, and adjustments to income. Here are some of the averages and why it's important for you to know this information.
The average American's tax deductions and creditsThe 2014 preliminary data is divided by adjusted gross income (AGI) level to illustrate the difference in deduction amounts claimed by each income group.
Furthermore, the IRS also shows how many returns claimed each particular deduction some of which are pretty rare. For example, as you'll see from the chart below, only 5.7% of all taxpayers claim a deduction for unreimbursed medical expenses, since only amounts that exceed 10% of AGI are deductible.
Having said that, here are 10 of the most common deductions and credits, the percentage of taxpayers who claimed each one for the 2014 tax year, and how much the average American claimed based on their income level.
Why it's importantThe point here is that the IRS knows what the typical taxpayer with your income level claims, and claiming deductions and credits in excess of these amounts can raise red flags and increase the likelihood of your return being audited.
Not only are excessive deductions and credits a red flag, but claiming rare deductions can also be cause for additional scrutiny, even if they're not excessively large. I already mentioned the deduction for unreimbursed medical expenses, but there are some that are even more uncommon, especially to claim on a continuous basis. For example, moving for work-related purposes only applies to 2.5% of taxpayers in a given year, so if you claim a deduction for moving expenses several years in a row, the IRS may want to take a closer look. Granted, some people do move frequently, but it is rare.
Only a small portion of tax audits are completely random, and the rest are triggered by one or more variables that stand out. For example, higher-income individuals and those claiming a home office deduction tend to get singled out more. Similarly, if you earned $75,000 last year and are claiming $25,000 in unreimbursed medical expenses, the IRS may be extra curious to see proof that you actually paid them.
The bottom line on deductions and creditsUnder no circumstances should the fear of an audit prevent you from claiming a legitimate tax deduction or credit. For instance, if you were extremely generous last year and gave $20,000 of your $75,000 income to charity, you should certainly take credit for it. However, it's useful to know what areas of your return might stand out so you can prepare better. Of course, you should be able to thoroughly document all of the claimed information on your tax return, but this is even more important if some of your claims are out of the ordinary.
The article The Average American's Tax Deductions -- How Do Yours Compare? originally appeared on Fool.com.
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