Many folks will tell you Mark Twain said, “It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.” Despite a deluge of misinformation, Twain's contemporary Josh Billings authored the expression. Let this quintessential mix-up guide your dealings in matters of fact, especially when the Internal Revenue Service (IRS) is involved. Whether it comes from the “barracks lawyer,” watercooler talk, or something you've heard on the radio, there are more than a couple of things some taxpayers “know for sure that just ain't so.”

1. Employee Expenses

For those on active duty and a few about to make the transition to the civilian world, a lot of misperceptions involve Schedule A - and the most common area is unreimbursed employee expenses.

Uniforms. More than one servicemember has assumed that because uniforms are required by the military, they are an unreimbursed employee expense. Sorry, it just ain't so. The IRS says a uniform (cost and maintenance) is deductible if 1. the employee is required to wear the clothes as a condition of employment and 2. the clothes are not suitable for everyday wear. You might think your uniforms qualify, but according to the IRS, most of your uniforms are suitable for everyday wear.

The IRS specifically addresses military uniforms and says active duty servicemembers can only deduct battle dress uniforms and utility uniforms and insignia or other distinctively military items such as ceremonial swords. Reservists' uniforms are deductible if they can only be worn while performing duties as a reservist.

And, sorry, if you're transitioning from the military to the civilian world, you can't deduct new suits, dress shoes, or cufflinks either.

Gym memberships. Ever heard this one? “I have to pass a PT test, so working out at the gym is a required employee expense and I can deduct the fees at the Pentagon Athletic Center.” It just ain't so. The IRS is very specific here. It states, “You cannot deduct health spa expenses, even if there is a job requirement to stay in excellent physical condition.”

Home office. You would think if you work from a home office (for the military or for your civilian employer), the expense definitely would be an employee expense. Begging the forgiveness of Billings, this one might be so, but you must meet several requirements before you can deduct a home office. The major ones are 1. you must regularly use part of your home exclusively for conducting business, 2. you must show you use the office as your principal place of business, and 3. the business use of your home must be for the convenience of your employer (it must be a business necessity).

2. Sale of a primary residence

Another area wrought with misperceptions is the sale of a house that has been a primary residence and a rental property.

Home sale tax exclusion. If you've been in the military for a while, there is a pretty good chance this one applies to you. Most people think if you've lived in your house for two out of the past five years (potentially up to 15 years if you moved out as a result of military orders), you don't have to pay taxes on the capital gains from your home. This one is just partially so.

There are two parts of the sale. The first part applies to the difference between the purchase price and sales price (after expenses). This capital gain can be excluded under Section 121 of the code. (If you have “non-qualified use,” a portion of the sale may still be taxable.) But there is more. When you rented out the house, you should have depreciated it. The difference between the depreciated value and the original value of the home is subject to taxation under Section 1250 of the code. Now you might have received advice to not depreciate the property to avoid taxes on the 1250 gains. This definitely ain't so. The IRS says you must pay taxes on the depreciation you took or should have taken. If you are subject to taxes on 1250 gains, the maximum rate is 25 percent. Another thing to consider is those 1250 gains might mean you owe taxes even if you sell the house for less than you paid for it.

3. TSP/401(k) plans and IRAs

Individual Retirement Account (IRA) eligibility. You've been told that because you are covered by the Thrift Savings Plan (TSP) or a 401(k) plan at work, the plan affects your ability to contribute to an IRA. It just ain't so. Your participation in a plan at work has zero effect on your ability to contribute to an IRA or the amount you can contribute. What it does limit is your ability to deduct your contributions to a traditional IRA.

Traditional IRA. If you participate in a retirement plan at work, you lose your ability to deduct traditional IRA contributions starting at $60,000 of modified adjusted gross income (MAGI), and deductibility is completely phased out at $70,000 of MAGI. If you're married, the phase-out range runs from $96,000 to $116,000 if the taxpayer or spouse is covered by a plan at work. However, if both the taxpayer and spouse are employed and one of them is not covered by a retirement plan at work, the uncovered spouse can deduct the full contribution to a traditional IRA as long as the couple's MAGI is less than $181,000. The deduction completely phases out at $191,000. If a couple's income is above the phase-out limit, the contributions can be made to a nondeductible traditional IRA.

Roth IRA. As previously mentioned, your retirement plan at work does not affect your ability to contribute to a Roth IRA. If your income is below certain limits, you can make a full contribution to a Roth IRA. The phase-out for a single taxpayer starts at $114,000 and ends at $129,000. For a married couple filing jointly, the phase-out range runs from $181,000 to $191,000.

4. Inheritance Taxes

Asset transfer and step-up. You might be pretty sure you'll have to pay income taxes when you get an inheritance. But don't worry. It just ain't so. Assets transfer from the decedent's estate to you and other heirs without income taxation. But that doesn't mean there will never be income taxes. It works like this: When the original owner of the asset dies, the basis (think of it as the cost of the asset) steps up to the value of the asset on the date of death. When the estate or the person who inherits the asset sells the asset, capital gains or loss will be calculated based on the price the asset is sold for and the stepped-up basis. So, no income taxes are due when you receive the asset, but there could be some taxes based on the sale price of the asset when it is disposed of. Of course, there still could be estate or inheritance taxes.

Tax laws are complicated. Be very careful if you decide to act on something you heard or your tax software insinuates. Before you take a deduction, read the IRS publication (search at www.irs.gov) that addresses the topic you heard about and confirm whether it just ain't so.

2015 Tax Law Changes

• Contribution limits to 401(k)/Thrift Savings Plan (TSP)/403(b) plans increased to $18,000.
• Catch-up (over age 50) contributions to 401(k)/ TSP/403(b) plans increased to $6,000.
• Exemption amount is $4,000.
• Standard Deductions are:
  • married, $12,600;
  • single, $6,300; and
  • head of household, $9,250.
• Maximum contribution to a defined contribution plan increased to $53,000.