Unfortunately it’s very easy to falter in this regard, and even a small step in the wrong direction could end up costing you thousands or attract too much attention from the IRS.
I want you to maximize your tax benefits without the audit, so check out these 4 rookie mistakes that you should be avoiding every year…
1) Deducting the wrong year’s property taxes
Always double check what year you should be making your property tax deduction on. With the (confusing) way things work, you have prepaid your 2016 property taxes the year before, or the system could be a year behind, meaning you paid your 2013 taxes in 2014.
Getting this right will ensure you’re getting the right outcome, and that you have nothing to worry about as far as the IRS is concerned.
2) Mishandling the home office
Don’t go over the top with your home office deduction. While things are much more lax on this issue than in the past, thanks to more and more of the workforce telecommuting from home, it’s still not something to be cavalier about unless you’re looking to get audited.
Make sure your home office doesn’t serve another purpose as well, and do your homework on which deduction to take.
3) Home repairs versus home improvements
Repairs and improvements are NOT the same thing, and they shouldn’t be counted as such on your taxes. Neither are easily deductible, but you should know the subtle differences if you want to maximize your tax benefit.
A repair is something that returns your home to its previous condition, and this can be deducted from your taxes if it comes as a result of a natural disaster. And while you could eventually use them for tax liability adjustment based on capital improvement when you sell your home, a home improvement (something that increases the value of your home) isn’t deductible unless it addresses accessibility for the disabled.
The biggest rookie mistake homeowners make with regard to taxes is being lazy. By that I mean many homeowners don’t have good documentation.
Anytime you come across paperwork (receipts, forms, etc.) relating to your taxes, file it away. Even if you never have to get it out, which would be a great thing, it will help you sleep at night knowing that you’re prepared.