Tax season has arrived yet again, which means it’s time to collect your business receipts and other legal paperwork from the past year so you can scrutinize over the numbers in hopes of receiving a refund…Right? Lucky for you, filing taxes doesn’t have to be as miserable as it sounds, especially with help from the experts!
Whether or not this is your first time filing taxes or you’re a seasoned pro, the process can still be an overwhelming challenge. From confusing verbiage to endless paperwork, it is difficult to know if you are getting back the full amount you deserve.
No one is taught how to file taxes in school, we all just know one thing: we have to do it. So why not ensure you’re going to do it in a way that is most advantageous for you, your business and your family?
When it comes to filing taxes, there are crazy theories, unusual hypotheses, and horror stories, which is why we are here to disprove the most common myths.
How To File Taxes For Beginners: 5 Myths You Should Never Believe
If you are new to file taxes or you aren’t claiming anything unusual, you should be able to complete your taxes free of charge (or for a low cost) online. If you are unsure or would prefer a second set of eyes, consider consulting a CPA.
The key to success when tax season for real estate investors comes around is preparation and meticulousness. If you are hoping to owe no money this tax season, it is crucial to qualify for as many deductions as possible. The more deductions you are eligible for, the lower your potential tax bracket and the less money you’ll be required to pay. To avoid an audit however, you must know which deductions are (or, are not) applicable to your specific scenario.
Because there are so many misconceptions floating around about how to file taxes, we’ve decided to clear up some confusion by debunking the most common tax season myths:
Myth 1: Because you are an entrepreneur who works for himself, you automatically qualify for a home office deduction and can write-off any and all related expenses.
Bust: The home office deduction is tricky impart due to that sneaky ambiguous language. The IRS allows those who work from home the right to deduct reasonable expenses (that’s right, “reasonable”). So what does that mean? Firstly, you must have a dedicated space exclusively for conducting business. While this does not mean you need an entire room in your house to be an office, it does mean the the recliner in the living room where you’ve made several business calls will not suffice. It is essential to have clear boundaries just in the case of an audit. Secondly, let’s say you have one internet service in your house. Of course you use it for your business; but do you also use it to indulge in your favorite Netflix series or does another member in your family use it for personal reasons? If yes, you will not be able to deduct your entire internet bill. So even if you do work far past the parameters of 9 to 5 in the comfort of your own home, you can legally only write-off exclusive business transactions.
Myth 2: You don’t have to file your taxes until you have the money available to pay what you owe.
Bust: Worried you’ll owe money this tax season but don’t have the funds to make a hefty payment? Unfortunately, the universal due date to file taxes in 2017 is April 18th regardless of whether or not you have enough money to pay your tax debt. (April 18th is no typo. You’re probably used to the dreaded tax day falling on April 15th; however, because April 15, 2017 falls on a Saturday and the following Sunday is the Federal holiday “Emancipation Day”, which is being celebrated Monday, go ahead and mark April 18th in your calendars). If you do end up owing the IRS money on your federal tax refund, even though 75 percent of filers received a refund last year, consider setting up an installment payment plan with the IRS. There is always the option to file an extension, which gives you an extra six months to file. But your extension must have a valid reason and be approved.
Myth 3: You made less than $10,000 last year therefore you don’t have to file taxes.
Bust: Even if you didn’t bring in a hefty income this year, it is important to still file your taxes. Why? Because you may be entitled to credits or other benefits triggered by a low salary. Secondly, if you did earn even some income, you will likely receive a refund from the taxes your employer withheld throughout the year. The good news is, you won’t owe any money!
Myth 4: Because your tax refund was deposited into your account, your return is automatically approved.
Bust: As convenient as it would be to have your taxes be automatically approved upon receiving your refund, the IRS does not make it that easy for us. In reality, they have up to three years to review your file and request follow up paperwork. This means, if you claimed something even as small as moving expenses, if you were under the 50 mile limit, the IRS has the right to bill you for what you had initially written off. So keep this bust in mind before you have a field day with deductions.
Myth 5: Because you are a real estate investor, you can deduct all of your real estate losses on your tax return.
Bust: Investing in real estate is beneficial for a number of reasons, one of which being the tax write offs. While you are able to capture all of your real estate expenses when filing taxes, there is no hard line on whether or not those expenses will have an immediate pay out. This is because there are hundreds of strict rules in place that control what and how much you can write off. In order to make unlimited write offs to all of your investment properties, you must first qualify as a Real Estate Professional (REP). You do not need a real estate license to be eligible for REP benefits; however, you must spend more time involved in real estate activities throughout the year than non real estate related actives and you must spend at least 750 hours over the year partaking in real estate activities.
If you want to ensure you are filing taxes correctly, meet with a CPA. He or she will give you everything you need to unlock all the deductions, write offs, and credits you deserve.
