When the day of filing tax approaches, you will start receiving conflicting advice from friends and family. Everyone will have an opinion about how and when you should organize for tax filing. There is a lot of common misinformation available about IRS and taxes.
Click here to get detailed information about taxes and their returns. People often tend to blindly pursue others’ tax advice and end up in trouble. So, to pull out of the IRS’s radar, we have mentioned the top ten tax myths that you need to stop believing.
1. Filing Taxes is a Voluntary Choice
If you hear someone telling you that filing taxes is a voluntary choice, know that he is not the one at fault. The tax instruction book defines tax as a “voluntary payment”. As per the form, filling in the text is not a legal obligation. However, this is not the truth. The term voluntary here refers to the fact that every individual’s responsibility is to determine the correct tax amount that they need to pay. It does not mean that filing taxes is voluntary.
2. You can Contend Your Pets as Subordinates
There is no denying the fact that you love your pets so much. Still, you cannot allege them as your dependents. It is indeed true that pets receive their financial support from their owners, and you fulfill all their requirements, but still, you cannot count on them as dependents.
There is a minor technicality behind this concept, which contemplates that they are not humans. You should avoid such circumstances of claiming your pet as a dependent falsely, as it is considered a fraud.
3. You Don’t Have to Pay Taxes for Illegal Activity
It is counterintuitive as it appears, but you don’t have the liberty to break another law after breaking one law. Even if you are into some illegal activities, the income earned from illicit activities is also taxable. In short, every income is taxable, no matter what means of earning it is.
From the tax compliance viewpoint, it is not the IRS’s duty to be concerned about the kind of activity you are indulged in. If you are making money, the government is authorized to their part, no matter the source. You may very well cover all your tracks that include illegal activities, but if you cheat on the taxes and are caught, it will come back to chew you.
4. Students are Not Obliged to Pay Taxes
It is a very common myth and certainly is partly valid. If a student depends on someone else, they don’t have to pay taxes no matter who they are. The same applies to independent students who are earning less than $12,400 in a year. Management students, engineers, doctors receive stipends while working in hospitals and firms. Even if they are being paid a lump sum amount, they are not needed to file any returns.
5. Deductions in the Home Office Result in Instant Audit
Long ago, there prevailed a time when this myth was somewhat true or had some validity. However, in today’s time, it hardly has any significance. Home offices are becoming widespread increasingly, and hence, this fact is transforming into a fiction predominantly.
There is no denying that when you claim a home office, it enhances the chances of scrutiny. But today, the concept of owning a home office has become quite common, and thus you need not be afraid of incurring any deductions from your income.
6. If You Earn Money Online, it is Tax-Free
This myth is simply inaccurate. It is nowhere written or said that you are not expected to pay taxes on the money you earn online. Upon getting to this myth’s source, you will find that this rumor was started by people who are doing online business. Most of them do not fill out W-9 forms, and hence, they also do not report their income to the IRS.
As per the IRS perspective, income earned online is not distinct from the one earned offline. No matter which medium you use to sell your product or service, you must declare your income in the tax returns if you are making an income of over $400.
7. The Accountant is Not Accountable for Any Errors
Whether you hire an accountant or not, if there are any errors in your tax return, you will be the one responsible for the discrepancies. You cannot just assume that your accountant will take care of everything and that he only will be responsible for any mistakes in your filings. You should establish a habit of cross-checking everything to ensure that the return is completely valid before filing it.
8. You Don’t Make Sufficient Money to Need an Audit
The process of auditing doesn’t concern much with your income. There are several other factors involved that are much more considerable and can raise flags against you. Individuals who are earning over $100k often get audited at least twice every year.
However, there prevails only a 1% chance of getting audited if they do not fall under the same threshold. It is advisable to maintain a comprehensive record of every transaction you think may be considered a wrong deduction.
The Bottom Line
You will get numerous misleading information out there when it comes to filing tax returns. These myths might land up in grave troubles. Thus, it is advisable to always cross-check these facts before believing in them.
Also, ensure to review your returns thoroughly before filing them. You must go through all the myths to know what wrong things can happen to you. Also, no matter how you make money, ensure to mention it in your tax returns. You should pay tax every year to get significant amounts of returns. We hope that the facts mentioned in this article will prove to be an eye-opener for you. Make an effort to save yourself from scrutiny by preventing yourself from falling into such traps.