“Taxes” isn’t a 4-letter word, but it might as well be. You’d think we would “know better” as we do our taxes more often, right? So, here’s the truth about tax myths you could have sworn you knew the answer to last year, but either forgot or blocked it out of your memory.
- If you file an extension, you’re more likely to get audited. FALSE! Studies have never found any correlation between extending the deadline for filing and getting audited. You’re also not going to get audited for filing early; that’s also a myth. There’s simply no “Eager Beaver” penalty! Keep in mind that fewer than 1% of tax returns were audited for incomes under $200,000 last year, according to IRS data. So the real deal is that being audited is extremely unlikely no matter when you file.
- You can claim pets as dependents. NOPE! You cannot claim your pet as a dependent, no matter how much they might be part of your family. However, you can write off expenses related to your pet’s care if those expenses are directly related to your business, as in the case of a guard dog, or if you need a dog for medical reasons (like a seeing-eye dog). Otherwise, Fido gets no tax love.
- Claiming the “home office” deduction is an automatic audit. MYTH! Home offices have become increasingly prevalent and common enough that there’s no need to be afraid of claiming a legitimate deduction; simply claiming this deduction is not an automatic trigger for an IRS audit. Just make sure your claim falls within IRS rules, namely that you have meetings there and use it as your primary office.
- An extension to file means an extension to pay. HELL NO! This is super important. Filing an extension will give you extra time to file your return, but any amount you owe is still due by April 18. An extension can help you avoid the failure-to-file penalty, but any outstanding balance will be charged a failure-to-pay penalty at 0.5% per month and also earn interest on top of that.The failure-to-file penalty is only 0.05%, so it’s much more beneficial to at least pay on time and then file late if for whatever reason you have to. The longer you wait, the more you’re paying Uncle Sam, not less.
- Students do not have to file income tax returns. INCORRECTAMUNDO! Your status as a student does not exempt you from having to file income taxes. Whether or not you need to actually file a return is determined by the amount of income you earned last year. For 2014, if you earned at least $10,150 you must file an income tax return, even if you were a full-time student for the entire year. However, even if you earned less than that, you should still file taxes because in the likely event you had federal taxes withheld from your paycheck you may receive a tax refund. You may also be eligible for an education credit like the American Opportunity Tax Credit, so don’t miss out.
3 AMAZING money savers
Here, three creative ways an entrepreneurial spirit can save major moolah on their taxes—then turn those savings back around to invest in themselves and their careers.
After all, your tax refund isn’t free money: it’s your money. So fight for it!
- Get money back for work expenses. Make sure you save receipts for making photocopies, subscriptions to job posting websites and trade magazines, and even your subway fare or gas money. As long as these expenses are legitimately work-red, they are tax deductible—meaning more money coming back to you after you file.
- Save on your home office. If you spend most of your time working from home, say as a blogger or private stylist, you might be able to deduct part of your monthly rent, your internet/cable bill, even your utilities. It’s a great way to offset some of the costs of keeping up your “office,” and you can then use that windfall to reinvest in your budding brand. Just keep in mind that these expenses can be tricky to prove, so always make a notation at the top of the receipt on how/why you are using this item as a legitimate office expense. You can also take photo evidence if necessary.
- Student loans are your friend: You heard right: Something good can come from your student loan payments. If you went to fashion or art school and are still paying down student loans, you’re usually paying off interest, which is tax deductible. Tax deductible is a fancy way of saying it helps reduce the amount of money that Uncle Sam takes a percentage of. So, the less money you claim, the less money in taxes you pay.
- Remember: Reducing your tax liability is a good thing.
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