Once upon a time, in a land not too far away, the tax season reigned supreme, striking fear and confusion into the hearts of many a brave soul. As the deadline for filing taxes approaches, you may feel overwhelmed with tax questions about your home office expenses, cryptocurrency investments, side hustle income, and more. With so many twists and turns in the tax tale, it’s only natural to ask everyone in your life how they plan to handle money received and money owed on their next tax return. But beware, dear reader—the tips you receive may be more myth than fact. In this thrilling adventure, we shall uncover the truth behind some of the most common tax deduction myths you should know.
Home Loan Interest
Once upon a home office, you may have heard whispers that HELOC interest is tax deductible and must be claimed. Nay, dear taxpayer! While it is true that the interest paid on a home equity line of credit (HELOC) can be tax-deductible, this only applies if the funds were used to buy, build, or substantially improve your primary residence. Using your HELOC for a wild vacation to the Bahamas, or simply to clear up that pesky credit card debt, will not yield the same tax benefits.
Cryptocurrency Exchanges
As you venture further into the cryptic world of cryptocurrency, you may encounter the legend of the tax-free digital asset. Many a brave investor has sought to avoid paying taxes on their virtual gold by exchanging one cryptocurrency for another. Alas, this myth is as fleeting as a shooting star. In reality, the IRS considers the exchange of one digital currency for another as a taxable event, and you must report any gains or losses on your tax return.
Earnings Threshold
In the fabled land of side hustles, some may tell tales of a magical threshold under which your income is invisible to the taxman’s all-seeing eye. The truth, however, is far less enchanting. Regardless of how small your earnings may be, you are required to report all income from your side hustle on your tax return. But fear not, for there may be legitimate business expenses that can be deducted to offset your taxable income.
Vehicle Costs
Many a weary traveler has sought solace in the myth that a new car or truck can be written off as a business expense. While a vehicle used primarily for business purposes may indeed qualify for certain tax deductions, personal vehicles used for commuting or leisurely Sunday drives will not grant you such a boon. The key to unlocking this particular tax treasure lies in documenting your business-related mileage and expenses diligently.
Student Loan Interest
In your quest for tax knowledge, you may have come across the fable of the student loan interest deduction. According to this legend, only the borrower can claim this deduction on their tax return. However, this myth has been vanquished by the benevolent IRS! In reality, if you’re a parent who paid back your child’s student loans, you may be able to claim the student loan interest deduction as long as you can claim your child as a dependent.
And Finally—
As our journey comes to a close, let us dispel one last myth: the tale of the late filer’s doom. While it is true that failing to file your taxes by the deadline may result in penalties and interest, there is a silver lining for those who are owed a refund. If you are due a refund, there is no penalty for filing late, and you have up to three years to claim it. However, it is best not to tarry too long, lest your refund vanish into the abyss of unclaimed treasures.
