29 Aug 10 Most Common Misconceptions About Taxes That Could Get You In Tax Problems
So many people have misconceptions about taxes, and many of them are entirely sure that what they know is right. These misconceptions can land you into tax trouble and problems with the IRS.
Want to Reduce Your Tax Problems? Watch out for these tax myths.
The IRS doesn’t care whether or not you know its rules! That’s why it’s crucial to dispel some of these myths. With that in mind, let’s take a look at the ten most common ones and shine some light on them!
1. If I file a tax extension this year, I don’t have to pay anything until then.
That would be nice, but it isn’t true. If you file for an extension, you still have to pay taxes by April 15, regardless of the extended deadline. If you don’t, interest and penalties will start adding up.
2. I have to file by April 15.
In most cases, this is entirely true. However, if there is a holiday or something else that’s affecting the federal government, the due date can be moved.
3. My tax bracket is my tax rate.
No, it isn’t. Yes, our country has a progressive tax system. And yes, you do move to another bracket if your income increases enough. However, that’s not true for your prior income.
4. My spouse and I have to file together.
No, you can file separately as well. In most cases, filing jointly will yield you some financial benefits, but that’s not always the case. Also, the same rules apply to same-sex married couples.
5. Itemized deductions always save me a lot of money!
Unfortunately, that’s a no. What you are actually saving is the difference between your standard deductions and your total itemized deductions. That’s because you can’t get the standard deduction if you file for itemized deductions. You need to check to see how much you would get on each and decide which is better.
6. The amount I spend on lunch with clients, I can subtract it entirely because it’s a business transaction.
People often think this to be the case. However, there is a difference between credits and deductions. Credits can be subtracted entirely, but business lunches and similar entertainment things fall in the deductions category, and you can thus make only partial 50% deductions.
7. I got paid in cash, so there’s no need to report it.
Yes, you do have to report it. If it’s income, you always have to report it. It doesn’t matter in what form the money comes, it’s still income, and the IRS wants a piece of it.
8. I don’t need to adjust withholding for next year if I got a refund.
The IRS says that you should evaluate your withholding status every year. This will ensure there are no unpleasant surprises when you file for taxes.
9. I’m still young, so I don’t have to pay taxes!
This is a complicated one, because there are so many different cases, and it would be worth it to check up on yours. For example, if you work part-time in high school, you still have to report earned income if it exceeds a specific amount.
10. If I run a business from my home, the income is tax-deductible.
Not for everyone! The IRS has several stipulations which prohibit some entrepreneurs from claiming the home business they have. You have to have a specific space in your home that’s only designed for business.
If you thought that any of these misconceptions were facts, you should give us a call. It would be worth it to understand how taxes work, or you’ll end up in trouble with the IRS! We at Golden Tax Relief are here to make sure you don’t.