Deduction Pitfalls

I wrote a couple weeks ago about the value of having someone knowledgeable guiding you through the tax return process. A lot of this value comes in knowing what you can deduct on a tax return. It is usually simpler to get that initial number of the amount of money you earned in a year than it is to properly use deductions to lower how much of that number will be taxed – and thus the amount of tax you have to actually pay.

A lot of these deduction misses come in simply not knowing that something is deductible. For example, you may know that having a home office is a potential deduction, but not understand that it doesn’t have to be a space with a separate entrance and your name on the door to count.

A lot of these deductions can also be difficult to know you are using correctly, though. For example, you may know that having a home office is a potential deduction, but not understand that doing some calculations on the family laptop at the dining room table twice a year for your Etsy shop is not going to count.

This is far from the only potential pitfall deduction, too. There are also weight loss programs, which are not deductible if you’ve entered one to look and feel better. They are deductible, however, if entering one was ordered by a doctor for a specific disease.

Are you looking forward to deducting some gambling losses this year? Well, then I hope you also kept track of how much you won.

Or are you one of the people who made a year-end charitable contribution with an eye to getting a little bump in your tax refund? Did you realize that this will only come into play if you are itemizing your tax deductions and not taking the standard one? And if you didn’t know that, are you then looking for ways to make the math work on the itemization side so that those contributions still came with the bonus you expected?

Hopefully by now you are starting to realize that doing that can be a difficult proposition and one that comes with potential serious consequences. You know all those scams that exist with people claiming to be from the IRS, that you better give them more money or face strict penalties? They work because we are scared and frightened of actually being in that position. So don’t put yourself in that situation.

And maybe it feels scary to meet with a professional because you don’t want to find out that you are in a worse position than you imagined. Sure, such a meeting may end in you finding that you cannot deduct all that you believed, but it will also probably help you find something you could deduct that you did not know about.

Finally, when it comes to facing such potential bits of bad news, remember the level of how bad it is can vary depending on how and when you receive it. Hearing it in February from someone who can help you from making a mistake on your tax return is going to be better than hearing it in August form an IRS agent.

Warmly,

Josh Bousquet
Connect to Us ~ Facebook ~ Twitter