Since most people have their tax returns prepared by a specialist, they usually do not feel it necessary to educate themselves on tax issues. However, this can result in grossly inaccurate returns, and can even lead to IRS fees and penalties. While many tax myths have been dispelled in recent years, there is still a lot of confusion out there. Below, please find my attempt to speed-up the learning process with my top 10 common misconceptions about taxes.
1. Working and non-working students are exempt
Although there are tax credits and breaks for students, no student is truly exempt unless they did not make enough money to need to file.
2. All married taxpayers need to file jointly
Although you do need to claim that you are married in your return, you can file as married filing separately. There are several reasons why you would choose to file jointly or not, and you might be surprised to learn that one filing status could benefit you more than the other.
3. Early filers have a higher chance of an audit
If you file the first day possible, it will not raise or lower your chances of audit whatsoever. The IRS does have a few red flags that can lead to an audit, but filing early is not on the list.
4. It is okay to write off any and all business expenses
Many new business owners make the mistake of writing off every business meal and every business outing they possibly can. In reality, you are only allowed to deduct 50% of business-related meals and entertainment expenses.
5. You do not need to file if taxes were withheld from your paycheck
Although taxes may have been deducted from your paycheck, you still need to file a return before the tax deadline. You may have income from other sources that did not have taxes withheld. In addition, a return acts as the vehicle to get some of the taxes withheld back in the form of a refund.
6. You only need to try and reduce your tax liability if you are rich
People of all incomes should take pains to claim all available deductions and credits. If you make an average income then every dollar saved means so much more! The misconception that tax deductions were made for the very wealthy is one of the oldest and most incorrect myths about taxes.
7. You cannot claim an adult, working child as a dependent
Even if your child is over 18, working full time, and in school, you can still claim them as a dependent as long as you are providing over half of their financial support.
8. You only need to file if you owe the IRS additional money
It is always a good idea to file, as you never know if you will have your returns evaluated later. More importantly, you can only receive special rebates like last years stimulus check if you file.
9. Only parents living with you can be claimed as dependents
Just like with children, as long as your making a large contribution to their support, your parents do not need to live with you to be your dependent. This is confusing to many taxpayers, and if you are not sure if your elder parent qualifies or not then you should seek advice from a professional.
10. You should not file your return until you can afford to pay
Actually, deciding not to file on time or to get an extension when you are low on cash is the worst possible choice. The IRS wants their money in any way they can, and will work out a payment plan with you. You also want to file on time even if you will owe because the failure to file could lead to a big IRS penalty.