We’ve all been told a tall tale, which sounds so credible; it’s hard to tell if it’s a truth or a myth. The same can be said for the IRS when it comes to deductions, which are fact and which are myth? Since the IRS tax filing deadline is just days away, it’s time to revive this blog and delve closer into deduction myths.
I have a client, who works for a major retail organization, who thought she knew the difference between IRS fact and myth. Recently, she came in to do her taxes and made a list for me of her deductions, which included her car, her home office, her wardrobe, and nearly 200 lunches. The problem is she couldn’t take most of those deductions!
See, while she’s allowed to work from home a couple of days a week, my client has a nice office at work, so her home office didn’t qualify as a deduction. Last year, my client bought an SUV, thinking she could write off the purchase because she has a long commute to work. What she didn’t know is that only small business owners, who use their cars for business purposes, can claim a vehicle deduction. She also bought herself a new wardrobe, thinking she could deduct her new dresses, slacks and blouses as well. And the lunches she purchased were not for a business prospect, but brought back to her desk. None of these qualify as deductions.
Why not, you ask yourself? Well, let’s play a game of IRS Fact or Myth:
There are tax credits for buying an SUV or vehicle?
FACT: Vehicles used in your business qualify for a tax deduction, especially if you lease or finance the vehicle. This is part of the IRS’ Section 179 deduction. For passenger vehicles, trucks and vans that are used more than 50% in a qualified business use, the total deduction for depreciation is limited to $11,060 for cars and $11,160 for trucks and vans. Make sure to refer to irs.gov or check with your accountant.
If you have a home-based business you can write off your entire house?
MYTH: You can only write off the portion of your house that is dedicated to your business.
You can deduct the cost of a new wardrobe if it’s for business purposes?
MYTH: You cannot deduct the cost of your clothes as a work expense. Unless the clothing your employer requires is specifically not made for everyday wear, such as a uniform or clothing with a company logo.
I can deduct all of the lunches I eat?
MYTH: No, lunch deductions do not exist. There is a deduction for meals on overnight business trips, or if you take clients to lunch to entertain them or to discuss business. Then you can deduct 50% of the cost of the meal.
There are so many more facts and myths, but again, the answer in figuring out which is which really depends on the situation. The best way to avoid filing a myth rather than a fact on your tax return is to consult a tax professional. At Brigade Bookkeeping we are experts in tax law, that’s because we’re not just bookkeepers, we happen to be accountants as well.
April 15th is just days away. Make sure you file your taxes or request an extension. If you have any questions, do not hesitate to ask, I am your go-to bookkeeper, who just happens to be an accountant. Now that’s a fact!