Beware of Tax Gossip!

So, this guy at the neighbor’s barbecue said his cousin told him about something his cousin’s friend did that saved a pile of money on taxes…Want to hear about it?

Surely we’ve all heard one like this!  And the clincher, of course, was that the guy was drinking the same brand of beer as the listener (or the person at the party with the most money,) so that makes the guy credible, right?  Wrong!  In my office, we call this “tax gossip.”

Here’s one from a recent tax season.  A client who works at a large south Jersey hospital called to complain that I did not deduct her health insurance costs on the tax form.  It seemed, now that health insurance costs were being listed on the W-4, and in light of all the hoopla over health insurance costs, some people thought it was a new expense they could deduct on their taxes; indeed, “all the other nurses were doing it.”  I explained that the health insurance costs had been there all along, and were pre-tax all along, but were simply being listed in a spirit of full disclosure.  I also recommended my client call the H/R Department to confirm that health insurance expenses were pre-tax.  Happily, my client made the call, and then called me back to apologize.

This sort of “tax gossip” happens all the time.  Some stories go around and around, and some pop up in response to news or legislation.  Perhaps the most frequent topic is the vast array of ordinary living expenses you can supposedly deduct if you own a business.  Get-rich-quick schemes and investment scams are also popular.  Of course, there are also the unlikely tax deductions linked to current events, such as the example above or various energy-efficient initiatives.

If it seems too good to be true, do your due diligence.  Maybe even check with a tax professional.  After all, keeping up with tax law is what we do!

Heard a crazy one this summer and like to share?  Comment below!  I enjoy a good laugh as much as the next CPA.

(This article contains no legal or tax advice.)