10 Common Tax Deduction Myths Debunked

No one wants to pay more in taxes than they have to. This is why we are all rightfully obsessed with claiming every deduction and credit we can. Unfortunately, there are a lot of myths about what is a deductible expense and what isn’t. Read on to find the top tax deduction myths debunked, and avoid the nightmare of IRS troubles.

Myth 1: I can write off my mortgage payments

Actually, you can only write off interest paid on your home loan, not the full payment. You should receive an IRS Form 1098 from each of your mortgage lenders that will tell you exactly what you can deduct.

Myth 2: If I use my home phone to make work calls, I can deduct my phone bill

The IRS is very strict about not letting taxpayers deduct the cost of their home phone. If you have a second business line put in for your home office, then you can deduct that expense, but not your first home line.

Myth 3: All fees paid to an attorney can be deducted on my return

Unfortunately, most legal fees do not qualify for deductions. There are only a few types of expenses paid to an attorney that can be deducted on your return, such as alimony collection efforts, estate tax advice, business assistance, etc. Check out this article on the RDTC blog for information about deductible legal expenses.

Myth 4: I can deduct my health club fees as medical expenses

Unless a doctor prescribes a specific diet or exercise plan to treat a medical condition (meaning it is not preventable care) then you cannot deduct your gym or diet program.

Myth 5: The cost of any Energy Star product is fully deductible

Unfortunately, only some energy efficient home improvements qualify for federal credits, and even so, there are limits and restrictions. Check out EnergyStar.gov for more information.

Myth 6: I can write off training expenses for our family pet

Unless you are training a guide dog, you cannot deduct expenses related to pet care or training for your family's dog, cat, rabbit, etc. If you are raising a guide dog, then you can deduct the costs of buying, training, and maintaining these animals, but be sure to see a tax professional to ensure you claim the correct deduction.

Myth 7: All of my medical expenses are deductible

This is a very common misunderstanding. Unfortunately, you will only qualify to deduct your medical expenses if they exceed 7.5% of your adjusted gross income.

Myth 8: I can make up values for all of my charitable contributions

Over the past few years the IRS has been cracking down on non-cash charitable contributions. Be sure that you only deduct the fair market value for the goods, and of course keep receipts and proof of what you donated. For more information on the charitable contribution deduction check out this article on RDTC.com.

Myth 9: My DMV registration fees are fully deductible

You can only deduct a specific part of your yearly DMV registration fees. According to IRS Topic 503, "deductible personal property taxes are those based only on the value of personal property such as a boat or car. The tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year." Your registration papers should identify which portion of the total can be deducted.

Myth 10: I can deduct the cost of the clothing I bought for my new job

Unfortunately the IRS is very strict on the unreimbursed job expenses you can deduct, and unless the clothing you purchase is a required uniform that is not to be worn outside of work, it will not qualify. For example, if you have to buy shirts with the company's logo, they may qualify, but a new suit you buy for an office job most definitely cannot be deducted on your return.

Common IRS Tax Audit Myths

There are a lot of myths going around this tax season about IRS audits, fortunately the RDTC Tax Help Blog has posted an entry debunking 10 of the most common myths. Below are the first 5 items in the list, but you can view the full article at Top 10 IRS Tax Audit Myths.

1. Having a home office is an audit red flag.

This myth was more popular when fewer people had home offices, but is definitely not true these days. Home offices are quite common today, and it alone will no longer flag you for an audit. However, that does not mean the IRS turns a blind eye to home office deductions. They will review it to make sure that it makes sense. If there is any reason for the IRS to believe that you are improperly claiming the home office deduction, then look out.

2. The mailing documents the IRS sends you are coded with audit flags.

This is false. The IRS sends you those mailing documents to make the mailing process more secure and easier. Failing to send your return in their provided envelope will probably do nothing more than delay your return and cause you frustration.

3. You can avoid being audited by filing late, after "audit season".

You would be surprised by how many people swear this works for them every time. Sure it works, but only because you start off with the odds against you being audited. Filing late or early will not help or prevent you from being audited. The IRS can audit you three years after the tax return in question is received.

4. If you make under a certain amount then you cannot be audited.

Income levels also have no affect on your audit probability. The IRS not only sends random audits to all income levels, but they take the time to look at each and every return. No matter what you make, if they believe that you are evading taxes in any way, they will audit you.

5. You cannot be audited once you have received your refund.

Receiving your refund just means the IRS has reviewed your tax return and agreed with your calculations. However, if they receive a return from a separate party who names you and that information does not match your return, then you can still be audited. And remember, the IRS can audit a return up to 3 years after it is received.