21 Common Tax Deduction Myths con't...

6.  I can write off the nicest clothes if I wear them to work...

The ONLY clothes you can deduct are those that your employer requires you to buy and are not made for everyday wear. An example is a uniform or clothing with a company logo. Just think “Hotdog on a Stick”. Ever seen one of their employees in a movie or at church wearing work clothes?

7.  I'm a student, so I don't have to pay taxes...

There's no special tax status afforded to students. Just like everyone else they are subject to any tax applicable on all their income. Students do get special tax credits, the Hope Credit and the Lifetime Learning Credit. Also, any distributions from a Section 529 Plan are tax-free. But their income is subject to tax, just like everyone else.

A trap that many students get into is thinking that they don’t have to even file a tax return. In many cases that is not true. Check with a tax professional to be sure but be sure of this, you get no free pass because you are in school.

8.  My child is working so I can't claim him as my dependent...

This myth is very misguided. The test here is that as long as you provide more than half that child's support the child qualifies as your dependent. Remember that support is what you spent, not what the child earned. If you provide 100% of the support of the child you get the tax deduction. 

9.  I'm over age 55, so I can sell my house tax-free...

Not exactly! The good news is that under current law, age no longer matters. If the property you sold was your principal residence for at least two out of the last five years, then you can exclude from tax as much as $250,000 in gain (and $500,000 on a joint return).

Age is irrelevant, and you can take the gain exclusion every two years if you qualify.

10.  I'm married, so I have to file a joint return...

Not true. If you're married, you can always file 'Married Filing Separately.' Now be aware that this action will normally results in you paying more in taxes. But that might be to your advantage.

For example, if one spouse has substantial medical or miscellaneous deductions, those items might never be used as a deduction if they do not meet the 7.5% and 2% minimum requirements respectively. Look closely at your individual cases and see if filing separately might allow you to then take advantage of those deductions. Ask a professional for assistance with this.

Incidentally, you can change your filing status annually.

continued...

<< Previous    1  [2]  3  4    Next >>