3 Tax Myths That Could Cause You a Headache

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Buying into the wrong tax information could cost you. Read on to learn more. 

The U.S. tax code is loaded with rules designed to save taxpayers money. It’s a good idea to read up on the credits and deductions that can lower your taxes.

But it’s also important to understand which credits and deductions you’re entitled to. If you claim the wrong tax breaks, you might end up owing the IRS money and having a headache on your hands. With that in mind, here are three tax myths you should not buy into.

1. You can claim a home office if you work remotely

Many people work from home in the wake of the COVID-19 pandemic. But unless you’re self-employed or run a small business from home, you’re not entitled to a home office deduction — even if you do 100% of your job from your house.

Now that said, you can claim a home office deduction against any self-employment income you have. So let’s say you’re a salaried employee who earns a regular paycheck from an employer. If that’s your only income source, you don’t qualify to take a deduction for a home office. But if you moonlight as a web designer on the side for six hours a week and get paid for that work on a freelance basis, then you can look at claiming a home office deduction.

2. You can deduct child care costs if you’re self-employed

Self-employed people can deduct different expenses related to doing their jobs. For example, if you run a tutoring service, you can deduct the cost of getting to and from clients’ homes. You can also deduct the cost of scheduling software you use to maintain your calendar and materials you use to enhance your lessons, like flashcards.

But one expense you can’t deduct in this situation is child care. Even though you might need to pay daycare tuition so you can do your job, child care is not a deductible expense when you’re self-employed.

However, if you pay for child care, you may be eligible for a tax credit that covers some of your expenses. It’s called the Child and Dependent Care Credit. And while it’s a little complicated to calculate, with the help of good software or an accountant, you can figure out what percentage of your child care costs you can claim.

To be clear, though, if you have two kids in daycare and spend $20,000 a year on child care, you can’t just claim a $20,000 deduction. The Child and Dependent Care Credit will only allow you to claim a portion of up to $6,000 in child care costs for two children.

3. You can claim a pet as a dependent

Having a pet costs money. And in some cases, you might actually end up spending more on your pet’s medical care than what you spend on yourself or your children.

Unfortunately, though, you cannot claim a pet as a dependent on a tax return the same way you can claim a child. If you’re struggling to cover the cost of pet care, look at pet insurance policies to see how the right one might be able to help defray your costs.

Keep in mind, though, that pet insurance generally won’t cover pre-existing conditions. So if your pet has many of those, your best bet for paying for their care may be to pick up a side job. If you do, track your expenses if you’re paid on a freelance basis so you can claim the right deductions.

Nobody wants to pay the IRS more money than necessary. But before you rush to snag your share of tax breaks, make sure you’re entitled to do so.

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