Tax myth #3: You can file pets as dependents
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While Fido can do a lot of tricks, one thing he can do is get you a tax break as a dependent.
Yes, we know. Pets are FREE. It is estimated that pet owners spent more than $72 billion on their furry pets in 2018, according to the American Pet Products Association. And any owner will tell you that taking care of pets is like taking care of a child.
Unfortunately, the IRS doesn’t see Snowball as a dependency no matter how much you like it.
HOWEVER, there are ways pets can be used on your taxes – especially through deductions.
If your pet is a guide dog or you have a therapy animal, you can deduct the expenses you incur from training, purchasing, animal care, and buying food.
From the IRS:
“You can include in medical expenses the cost of buying, training, and caring for a guide dog or other animal that assists a person who is blind or hearing impaired, or a person with other physical disabilities. Generally, this includes any expenses, such as food, grooming, and animal care, incurred to maintain the health and well-being of the service animal so that it can perform its duties.”
You must keep a detailed record of all of these situations although the IRS will want proof that 1. You really need a service animal and 2. your service animal is trained to help you.
Also, if you own a business and have a pet, you can deduct its expenses from your taxes as well. Your guard dog is an important part of keeping your business safe. As a service animal, you can deduct the animal’s care, food, training, and purchase expenses.
ACTION STEP: Deduct your service animal and/or therapy animal expenses.
If your pet is part of your business and/or welfare, see if you can deduct it on your taxes this year. For more information, check the IRS guidelines on the topic.
Tax myth #4: Your accountant is vulnerable to tax filing errors
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Financial professionals are a dime a dozen. But a good financial professional who really knows what they are doing is rare.
That’s why it’s not surprising that storytellers get things wrong sometimes. If they do, it may affect your research.
That’s right. It’s not in your accountant. It’s completely up to you.
You can avoid financial disaster at the hands of your accountant by doing two things:
- Good find
- Double checking their work
You can make sure the tax preparer is reputable by requesting a Tax Preparer Identification Number. The IRS requires them to have this number in order to legally prepare someone’s corporate tax return.
You can also make sure they are licensed as a CPA, tax attorney, or have gone through the IRS Annual Filing Program.
Regardless of their credentials, you should be sure to double check their work. Go over the filling once it’s done to make sure everything is covered. Do that and you’ll be better prepared mostly smooth tax season.
ACTION STEP: Find a reputable accountant and double check their work.
It is important to make sure you find a reputable professional to handle your financial needs during tax season. Sure, they can be expensive, but you know what’s more expensive? An audit!
Tax myth #5: Your “home office” gives you a deduction
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Maybe your company allows you to work from home once a week. Maybe you work remotely from home all the time.
Either way, you’re probably wondering if you can start ditching things like your internet bill, office desk, computer, motivational posters, and everything else you need to get work done.
However, this may not be the case for you. In fact, the IRS has outlined two requirements that you need to meet before you can start taking things out of your home office:
- General and special use
- The main location of your business
General and special use refers to you using the portion of your home that is solely for your business. That could mean things like a spare bedroom you turned into an office, or a workshop where you do all your work.
Having a room is not enough though. You also need to prove that your house is yours the main location of your business. That means you “have in-person meetings with patients, clients, or customers in your home during the normal course of your business,” according to the IRS.
ACTION STEP: Decide whether or not you can outsource your home office.
Ask yourself: Am I using this space only for my business? Does most of my business come from here?
The deduction is based on the percentage of your home contributed to your business. To calculate it, take the following steps:
- Step 1: Find the square footage of your home. If you don’t know the square footage, you can call your county assessor’s office and they will be able to tell you.
- Step 2: Measure the square footage of your home office. (For example, if your office is 10 x 16 feet, your square footage will be 160 square feet).
- Step 3: Divide the square footage of your home office by the total square footage of your home. (Eg, 160 sq ft / 2000 sq ft = .08).
- Step 4: Multiply the number by 100 and you will have the percentage of your home office in relation to your house. (Eg, .08 x 100 = 8%).
Now you will be able to deduct that amount from the total cost of your home.
So let’s say with utilities and a mortgage, the annual amount needed to run your home is $20,000. $20,000 x 8% = $1,600
During tax season, you’ll be able to deduct $1,600 for your home office.
Make sure you’re ready for tax season
The world of taxation is a Kafkaesque minefield of confusion. To help you navigate it, be sure to check out our resources below:
Now I want to answer it for you: What tax myths have you noticed? Are there any that make you roll your eyes when you hear them? I would love to hear from you on social media. I’ve debunked a lot of tax myths in this Instagram post, leave a comment and let me know which ones I missed.