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Individual tax can be hard to understand. The tax laws seem to change every year. There are some things that many people don’t know about their individual tax filing. Here are just a few of them.
Home Office Deductions
The IRS doesn’t like to pay out for home office deductions, but they will allow the deductions. The problem is claiming a home office on your individual taxes will almost always result in a flag. You can avoid this by keeping immaculate records and fill out form 8829 when you file. You will need to include a description of your home business activities, and possibly attach receipts of any equipment purchased for this. As long as you have this form you won’t get hassled.
Taxable Gifts
The IRS wants their money, regardless of where you got yours from. In most cases a gift of over $13,000 will require you to pay taxes. There are ways you can get around this. If you gift money to several people and keep each individual gift under the exclusion amount of $13,000 you won’t have to pay any taxes. Spouses can also gift money individually up to that amount, which means that the couple could conceivably give a gift up to $26,000 without paying taxes. Payments made for college or medical expenses on someone else’s behalf can also be seen as a gift.
Paying Penalties
If you end up owing money to the IRS and you don’t pay it in a timely fashion you will face large penalties on the taxes you do owe. These penalties can be as high as 25%, if not higher and will add on top of the debt very fast. Before you know it the amount you owe can double and triple. There are tax laws that allow the penalties to be reduced, and in some cases erased all together. You just need a reasonable cause. Some reasonable causes the IRS has accepted in the past have been: medical issues, ignorance, drug abuse, providing for loved ones, divorce, and even bad accountants.
Audit Letters
If you end up getting an audit letter saying you need to make an appointment you don’t actually have to and speak with the auditor at all. In fact, it’s advised that you don’t. The Taxpayer Bill of Rights states that you can be represented by a tax attorney or qualified CPA. In most cases you should have them go on your behalf. The IRS counts on you going because you probably don’t have the knowledge and expertise to defend yourself properly. The person representing you can do everything necessary, and even resolve the problem without your presence.
Don’t let the IRS scare you. There are plenty of reasons that people are terrified when it comes to individual taxes. But most of our fear comes from lack of knowledge. Just follow the rules and you can find solutions to all your problems.
