Wednesday, 14 March 2012

Tax Deduction Myths!

The tax laws listed out in full glory on the taxpedias might at most times seem too overwhelming for us to understand and interpret. So, there is bound to be a lot of confusion on what deductions to claim on your income tax return. A few commonly misinterpreted / misrepresented deductions are listed below for your clarity:

1. You cannot claim interest deduction on your personal credit card

Whenever you make personal charges to your credit card such as personal recreation, eating out etc, in general, any expense related to running your day-to-day life, the interest is not deductible.

A number of years ago, consumer-interest deductions were allowed, with the belief that it would enhance consumer spending and hence improve economy. However, it was changed on the basis of fear that people may begin to over spend and over borrow.

Hence, if you are self-employed, the best bet to eliminate credit card related confusion is to have separate cards earmarked for your business and personal life.

2. You cannot claim deductions on expenses towards your work clothes / interview suit

You cannot claim deductions on getting smartened up for an interview / work environment demands, but expenses towards smartening up your resume and looking out for jobs with the help of an employment service agency can be deducted.

3. You cannot deduct commuting costs when moving from your place to the office

This cannot be done, as the time you spend commuting to work is considered personal and on the presumption that you have chosen your place of living in relation to your workplace.

However, if you are self-employed / work from home, your cost of commuting from your residence to any place on work-related business (meetings et al).

If you are planning to claim any of the above, sit down with your accountant / tax professional and ensure you have everything noted down properly and in compliance with the IRS regulations.

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