Failing to Report All Income and Gains

In addition to reporting your salary and bonuses, you must report any gains from the sale of stocks, bonds, mutual funds, property or any other insert-earning investments. The IRS receives copies of your W2s and 1099s so if you fail to include them on your return you could provoke an audit. Also remember if you are one of millions that got laid off last year and received unemployment income you’ll need to report that too.

Claiming a Home-Office Deduction

If you run a home-based business you can write off part of a portion of your home dedicated to business. That means it has to be 100% dedicated to business, not an office by day, guest room by night set up. If you work part-time at home to get a break from the office, you will not be able to write off any home-office expenses since your employer has already provided space for you at work and has not required you to work from home.

Deducting Medical Receipts

Medical receipts are deductible if they exceed 7.5% of your adjusted gross income. If you do manage to spend 7.5% of your AGI, then you will only be able to deduct the amount above the 7.5%. So if your AGI is $75,000, you would have to spend more than $5625 out-of- pocket for a deduction. That means if you spent $6000, you can only deduct $375. Keep in mind “out-of-pocket” means expenses you can’t get reimbursed by your health insurer or flexible spending account. No double dipping allowed.

Failing to Pay Taxes on Forgiven Debt

If your credit card company forgives a portion of your debt they should send you 1099-C. When you file your taxes this needs to be included as part of your income and yes you will have to pay taxes on it. So if your credit card debt is reduced from $10,000 to $5,000, then you’ll have to pay taxes on $5,000. Yes it’s not fair, but right now it is the law. The only to avoid paying taxes on forgiven debt is proving that your debt surpasses your income, or when you go through bankruptcy.

Misreporting Real Estate Gains and Losses

With all the turmoil going on in the housing market, Uncle Sam is keeping a close eye on real estate losses on tax returns this year. It doesn’t matter if you lost your home to foreclosure or lost or gained money on a sale, all real estate transactions need to be included on your tax returns. If you sold your home at a loss, your primary residence is considered a personal asset and can’t be claimed as a deductible. If you were foreclosed on last year, read up on the Mortgage Forgiveness Debt Relief Act of 2007. If your lender decides to forgive all or a portion of your mortgage debt, the forgiven amount is no longer taxable. This only applies to primary residences, rental properties are ineligible for relief, foreclosed on through 2012.