For millennials just getting used to the tax code, some common misconceptions can lead to disappointment, and maybe even a big bill on filing day.
CPA Jackie Meyer, who owns her own tax firm in Southlake, breaks down the five tax topics everyone needs to study up on.
Tax Misconception #1: “I’ll just write it off!”
Meyer says: “I have clients that come to me all the time and say, ‘my buddy wrote this off, can I?’ And I’ll say ‘well I need to know about 15 more facts about your buddy’s situation before I would be able to determine that, but here’s your situation and it’s not going to happen for you, sorry.’”
Tax Misconception #2: "I can deduct all my work expenses!"
Unless you’re self-employed, you have to spend a big chunk of your income on required work expenses before you can claim them at all. And, you’ve got to have proof.
Meyer says: “By the way, the IRS now is mandating that you have a letter written from your employer stating that those are required, unreimbursed expenses which is very different from years past, but you have to exceed 2 percent of your adjusted gross income to deduct those items.”
Tax Misconception #3: "My commute is going to maximize my refund!"
Meyer says: “No, not at all, even if you’re self-employed. So any commute between work sites is not deductible.”
Tax Misconception #4: "The more I spend on students loans, the better for my taxes."
Meyer says: “There’s two limits you have to think of first, you can only deduct $2,500 per year, and most people I know have a lot more student loan interest than that, unfortunately. Secondly, there’s a phase out.”
That means singles making $80,000 per year and married couples making $160,000 can’t claim student loan interest.
Tax Misconception #5: Medical expenses are tax return gold
They might be, if you spend significantly more than 10 percent of your adjusted gross income on medical expenses and decide to itemize your tax return.
Meyer says: “You know, it doesn’t really necessarily help the average person. I know very few people who actually qualify for that, unless they have some catastrophic type of event that occurred.”