Tax season is full of conventional wisdom- a few of which may not really be valid for each and every situation. Learn the truth about some tax myths that are common, in order to file your return with your eyes open.
After years of filing federal, state, and city taxes, you may think you understand everything regarding the income tax process. Every person or family's financial situation is unique, and ascribing to some one-size-fits-all tax preparation procedure might not be the most suitable choice. Learn the truth about these essential tax myths and break free from the cycle this tax season.
"A Larger Refund Is obviously Better"
Many taxpayers optimize their withholding throughout the year, wagering they'll get a giant refund. While withholding some extra can take the worry from tax season-after all, you'll be sure you will not owe the IRS additional money -withholding too much can be harmful to your family or private finances. By basically giving the IRS an interest-free loan throughout the year, you are taking money out of your pocket. Should you find yourself struggling to stay on top of monthly bills and paying for things on credit, think about just how exactly you might be benefited by that additional pillow each pay check. Speak to an accountant in your town about developing a withholding strategy that still offers a small refund, but gives you more to work with throughout the year.
"I Should Keep Spending-it is a Tax Write-Off"
It might be inviting to splurge on tax-deductible items throughout the year. But the settlement in your tax refund certainly will not equal the cost of the items in question. And, like withholding the money you need to work with year round is reduced by overspending, in exchange for a lump-sum that you may find yourself spending on a big-ticket item. Therefore, if you are buying that new technology gadget more because it's tax-deductible than because you really desire it, think again. One note: The same fundamental theory applies to payments that are ongoing, such as student loans and mortgages. Talk with your CPA firm in Los Angeles about whether it makes more sense to pay off those balances immediately or to spread them out as well as receive the accompanying tax deductions.
Individuals who work at home are eligible for a home office tax deduction. But the Internal Revenue Service has very strict guidelines for what constitutes a home office. The greatest qualification is your home office is your main place of employment - you are ineligible to claim this deduction, so if you go to an outside office 40 hours a week. Furthermore, the home office must be properly used nearly exclusively for business operations. Be careful about claiming the home office deduction, and be alert about supplying backup materials to strengthen your claim. Claiming this tax write-off falsely can put you on your way to some tax audit.