Five Common Tax Myths Debunked

Posted In: Financial Planning

Around this time every year, a handful of tax myths rear their ugly heads. Some of them change year to year, but there are a few stubborn ones that just won’t go away.

Misconceptions about whether full-time students need to file, who’s responsible when filing your taxes, and a handful of other questions always seem to arise. The myths, and their coinciding truths, that commonly plague tax preparers, and why you should stop believing them, are listed below.

1. Myth: Filing for an extension means I’m more likely to get audited.

 Truth: This is incorrect, and in fact, about 99% of individual tax returns never get audited. Filing an extension is so common, that more than 10 million taxpayers file for extensions, per year! They are so common that even most State governments will automatically grant you an extension if you have an approved Federal extension.

2. Myth: Fido needs me, so I’m claiming him as my dependent.

Truth: Of course Fido may “feel” like family, but you cannot claim your pet as a dependent. Specific animal expenses can sometimes be claimed, but your pet is just that, a pet. Falsely claiming a dependent is considered fraud and should be avoided at all costs.

3. Myth: Students get to live a tax-free lifestyle.

Truth: Not necessarily. Full-time students, earning less than $9,000 a year, don’t have to file a return. However, it’s typically in the student’s best interests to file taxes anyway, because if they had an employer who withheld money for tax purposes, they are probably due a refund.

4. Myth: If my tax preparer makes a mistake, the IRS won’t hold me liable.

Truth: Don’t count on it. Whether or not you hire an accountant, you are ultimately responsible for any mistakes. The IRS says you’re responsible for all of the information that goes on your tax return. Whether you prepared the forms, or not. So read it carefully!

5. Myth: Filing my taxes is voluntary.

Truth: Although this may seem like a blatant falsehood, there is a surprisingly large number of people who contend that because the Form 1040 instruction book describes the tax system as “voluntary”, that means they have no legal obligation to actually file. This is not the case. Unless you have a legitimate dispute, trying to get cute with the IRS and contesting the payment or filing of your taxes, is always a bad idea.

Original article by Chris Neiger via The Motley Fool March 14, 2016

http://www.fool.com/investing/general/2016/03/14/5-tax-myths-debunked.aspx

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