Despite calls to raise tax rates on the wealthy, the reality is that we all want to pay as little in taxes as possible. Most of us look for opportunities to eke out bigger deductions and reduce our overall taxable income. But it's easy to cross the line and unintentionally do things on our tax returns that make us auditing targets.
With only a few days left before April 15th, here's a roundup of some of the potentially most dangerous tax errors you can make. For the whole list, check out LearnVest for its interview with CPA Gary Craig.
Don't be too aggressive with unreimbursed business expenses. Craig recommends keeping both receipts for business expenses as well as a copy of your company's actual reimbursement policy. Without those items, the IRS has no obligation to recognize your expenses.
Don't take inappropriate real estate deductions. According to Craig, if you're not a real estate professional and you make more than $150,000, you can't take losses on any rental properties that you own to lower your taxable income.
Don't inflate the value of a donated car. What's your car worth? That's an important question if you donate it to charity. Be able to back up any claim with documentation, even if it's the Kelly Blue Book. If you claim more, have receipts for any work you made to improve the car.
Correctly interpret the stock transitional wash sale rule. This is tricky, which is why it trips up so many people. If you sell stock at a loss, you could normally deduct those losses to lower your taxes. But if you buy more stock within 30 days of the sale, then the first sale is disregarded. It's like the sale never happened, Craig said.
Be wary of the home office deduction. Everyone knows that home office deductions are treacherous and can raise audit flags. Starting in 2013, the rules are changed. You can now take a "standard" home office deduction that adds up to $5 for every square foot of office space. But until then, make sure you understand the rules and use a home office appropriately.
- Investing Education