Myths About Income Tax Deductions

Tax-DeductionsWith something as sensitive as your taxes, certain pieces of information naturally begin to spread like an urban legend over time. If you’re new to the world of freelancing and talk with a friend who has been freelancing for years, you may here something like “Don’t take a specific deduction because it’ll definitely get you audited” or something of that nature. By understanding more about these myths about income tax deductions you can begin to separate fact from fiction and will become much more comfortable with the concept of deductions in general.

The Home Office

One of the biggest myths about income tax deductions is that writing off your home office is a sure fire way to get audited. That may have been true in the past, but studies have shown that more people are working from home than ever before. The IRS no longer singles out people taking home office deductions for audits, if they ever did in the first place. What can get you audited with regards to this deduction, however, is failing to follow directions or not providing every last bit of relevant data. So long as you qualify for the deduction, you’ll be fine.

Losses

It’s common knowledge that if you operate a business and the profit from that business is outweighed by your expenses throughout the year, you’re entitled to write off a certain percentage of those losses as a deduction. The total amount changes depending on the type of business and how much money you make. One of the most prevalent myths about income tax deductions, however, is that you’re allowed to do this indefinitely.

In reality, the IRS is very strict about how long you can claim losses for a business on your income taxes before something has to change. If your business experiences losses for longer than five consecutive years, the IRS will definitely begin to take a closer look at your income taxes moving forward. At the same time, if your business is losing a huge amount of money each year for five years and it looks to continue to do so for the foreseeable future, it may be time to give something else a try anyway.

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  • Huddleston Tax CPAs – Bellevue, WA
    Certified Public Accountants Focused on Small Business
    40 Lake Bellevue, Suite 100 Bellevue WA 98005
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    Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching,
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    We serve: Sammamish, Kirkland, Mercer Island, Seattle, Redmond, Issaquah, and areas throughout WA.
    We have a few meeting locations. Call to meet John C. Huddleston, J.D., LL.M., CPA, Lance Hulbert, CPA, Grace Lee-Choi, CPA, Jennifer Zhou, CPA, or Jessica Chisholm, CPA. Member WSCPA.