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Thursday, June 20, 2024

5 common tax myths you should ignore


Tax myth #3: You can file your pets as dependents

VERDICT: BUSTED

While Fido can do a lot of tricks, the one thing he can’t fetch you is a tax break as a dependent.

Yes, we know. Pets are EXPENSIVE. It’s estimated that pet owners spent more than $72 billion on their furry ones in 2018, according to the American Pet Products Association. And any owner will tell you that caring for their pets is essentially like taking care of a child.

Unfortunately, the IRS does not recognize Snowball as a dependent no matter how much you love them.

HOWEVER, there are ways your pets can be leveraged on your taxes — specifically through deductions.

If your pet is a service animal like a guide dog or if you have a therapy animal, you can deduct expenses you incur from training, purchasing, vet care, and buying food.

From the IRS:

“You can include in medical expenses the costs of buying, training, and maintaining a guide dog or other service animal to assist a visually impaired or hearing disabled person, or a person with other physical disabilities. In general, this includes any costs, such as food, grooming, and veterinary care, incurred in maintaining the health and vitality of the service animal so that it may perform its duties.”

You must keep a detailed record of all of these instances though, as the IRS will want proof that 1. You actually need a service animal and 2. your service animal is actually trained to help you.

Also, if you run a business and you have a guard animal, you can deduct its expenses from your taxes as well. Your guard dog is an integral part of keeping your business safe. As with service animals, you can deduct vet care, food, training, and purchases expenses.

ACTION STEP: Deduct your service animal and/or therapy animal’s expenses.

If your animal is integral to your business and/or well-being, see if you can deduct it from your taxes this year. For more information, check out the IRS’s guidelines on the subject.

Tax myth #4: Your accountant is on the hook for filed tax mistakes

VERDICT: BUSTED

Financial experts are a dime a dozen. But a good financial expert who actually knows what they’re doing is rare.

Which is why it should come as no surprise that accountants get things wrong sometimes. When they do, it could result in an audit for you.

That’s right. It’s not on your accountant. It’s entirely on you.

You can avoid financial disaster at the hand of your accountant by doing two things:

  1. Finding a good one
  2. Double checking their work

You can make sure a tax preparer is reputable by asking for their Preparer Tax Identification Number. The IRS requires that they have this number to legally prepare someone’s federal tax returns.

You can also make sure that they are licensed as a CPA, tax attorney, or have gone through the IRS Annual Filing Season program.

No matter what their credentials are, you should make sure you double check their work. Go through the filing once they’re finished to make sure everything is covered. Do that and you’ll best prime yourself for a mostly smooth tax season.

ACTION STEP: Find a reputable accountant and double check their work.

It’s important to make sure you find a reputable professional to handle your financial needs during tax season. Sure, they might be expensive, but do you know what’s more expensive? An audit!

Tax myth #5: Your “home office” gives you a deduction

VERDICT: PLAUSIBLE

Maybe your company lets you work from home once a week. Maybe you work remotely from home all the time.

No matter the case, you’re probably wondering if you can start deducting things such as your internet bill, office desk, computer, cheesy motivational posters, and everything else you need to get work done.

However, this might not be the case for you. In fact, the IRS outlined two requirements you need to meet before you can start deducting things from your home office:

  1. Regular and exclusive use
  2. Principal place of your business

Regular and exclusive use refers to you using a section of your house exclusively for your business. That can mean things like a spare bedroom you’ve converted into an office, or a workshop where you do all of your work.

Having a room isn’t enough though. You also need to prove that your house is your principal place of your business. That means you “have in-person meetings with patients, clients, or customers in your home in the normal course of your business,” according to the IRS.

ACTION STEP: Determine whether or not you can deduct your home office.

Ask yourself: Do I use this space exclusively for my business? Does the majority of my business occur here?

Your deductions are based on the percentage of your home that’s devoted to your business. To calculate it, take the following steps:

  • Step 1: Find the square footage of your home. If you don’t know the square footage, you can call your county assessor’s office and they’ll be able to tell you.
  • Step 2: Measure the square footage of your home office. (E.g., If your office is 10 x 16 feet, your square footage will be 160 square feet).
  • Step 3: Divide your home office square footage by the total square footage of your house. (E.g., 160 sq ft / 2000 sq ft = .08).
  • Step 4: Multiply the number by 100 and then you’ll have the percentage of your home office in relation to your house. (E.g., .08 x 100 = 8%).

You’ll now be able to deduct that amount from the total cost of your home.

So let’s say with utilities and mortgage, the annual amount it takes to run your home is $20,000. $20,000 x 8% = $1,600

At tax season, you’ll be able to deduct $1,600 due to your home office.

Make sure you’re ready for tax season

The world of taxes is a confusing Kafkaesque minefield. To help you navigate it, be sure to check out our resources below:

Now I want to turn it to you: What tax myths have you noticed? Are there any out there that make you roll your eyes when you hear them? I’d love to hear from you on social media. I debunked even more tax myths in this post on Instagram, leave me a comment and let me know what ones I missed.



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