Filing your tax involves a lot of work, patience, and experience. First-timers may get intimidated by the numbers and all of the documents involve in accomplishing their tax return. It definitely helps to work with a professional accountant or a tax expert to ensure that you do not incur more expenses due to errors in your files.
Of course, not everyone would opt to hire someone else when they think they can handle their taxes themselves. After all, most of the information you need to get started is probably somewhere on the internet. The only problem here is that not everything you read on the internet is true, and there may even be some misconception shared amongst people who are not in the accounting and finance industry.
Top Myths About Filing Tax Returns
Although the internet can get you in touch with people who can give you a piece of advice to get you through the tax season, it does not mean that every piece of advice you’ll get is reliable or true.
Here are some myths about filing your taxes that you should know about:
Filing taxes is voluntary.
This myth has some truth to it, but not in the sense that some people may think. There is a difference between voluntary or optional. It is true that the US tax system is characterized as voluntary.
However, it is voluntary in the sense that you, as a taxpayer, may complete your returns and calculate the tax due instead of letting the government do it for you. So note that filing your income tax returns is still very much a requirement, and you should comply with it.
You can further review tax filing requirements in the tax code in Sections 6011(a), 6012(a), and 6072(a).
You do not have to pay your taxes until you have accomplished filing your tax return.
There will be times that your daily life is so overwhelming that you’d need some extra time to finish working on your tax returns. The IRS can give you some extension to file your tax returns.
However, there is a myth that you can also hold off paying your taxes until you have filed your tax. According to Treas. Reg. 1.6081-4(b), the extension of time to file does not extend the time to pay the tax.
Keep in mind that failing to pay your taxes will result in penalties. So pay on time to the best of your abilities.
You do not need to pay tax if you are paid in cryptocurrency or cash.
This myth started because cash or cryptocurrency payments do not leave a paper trail. You have the option not to deposit your cash in the bank and you can move cryptocurrency around without any records as well.
However, the fact that these modes of payment do not have a bank statement does not exempt them from being reportable or taxable.
You can claim a home office deduction because of the ongoing pandemic.
Remote work or working at home has become an option in most companies. That said, it may make sense for you to deduct the cost of the internet and other home office expenses. Unfortunately, that is not the case at all.
The 2017 Tax Law for the tax years 2018 through 2025 states that employees who work from home can no longer claim the home office deduction regardless of the reason they need to work remotely.
Expenses are ALWAYS good for tax deductions.
Tax deductions help reduce your taxable income which reduces your tax due. As good as that sounds, it does not mean that you should go ahead and splurge on expenses just because they generate deductions.
Keep in mind that at the end of the day, you are still spending money. On top of that, your expenses need to be necessary for tax and business reasons. Even if you save 25% in tax because of the deduction, you still paid 100% for all the expenses.
Filing for an extension will increase the chance of getting audited.
Getting audited sounds intimidating since it would make you feel that you have done something illegal. However, this myth needs to be busted. In reality, getting an extension can actually lower your chance of an audit. The IRS will only audit someone with a suspicious-looking tax return. So if you file a complete, accurate return on an extension– then you should be fine.
Inversely, if you file a rushed, sloppy return just to meet the due date– you’d be prone to errors. Errors and consistency can look suspiciously which could convince the IRS that they need to audit you.
At the End of the Day
You need to fact-check information that you get from the internet or other people. Doing so will help you stay on track of your tax return while staying away from penalties.
Working with a professional accountant ensures that you are in good hands. You’d be confident that you are not misguided by myths.