Tax laws can be hard for many people to understand and follow, especially because changes to the tax code are quite common. There are many myths regarding tax law, and in this article we will debunk a few of these tax myths.
- Filing taxes is voluntary. This is not true at all. The 1040 instruction book describes the tax system is voluntary, but what this means is that each person is responsible for determining the amount of tax he owes. Filing taxes is not an option, you are required to file taxes.
- My accountant is liable for mistakes on my tax return. This is not true. Whether you hire an tax preparation expert or do your taxes yourself you are liable for any mistakes or omissions on your tax return. This is why it is important to give your CPA all of your tax information so that no errors occur.
- Pets can be claimed as dependents. Many people love their pets as if they were a member of the family, but to the IRS they are not. Pets cannot be claimed as dependents, but that doesn’t stop people from trying. The IRS considers this fraud, so you shouldn’t claim your pets as dependents.
- Illegal activity is not taxable. Even if you made your money illegally Uncle Sam still wants his share. Money earned from bribes, fraud, selling drugs, or any other illegal income is still taxable, as the IRS still expects its share. Famous gangster Al Capone was imprisoned for tax fraud for not declaring his illegally earned money.
- Home office deductions make you an instant target for a tax audit. Although home office deductions slightly increase your chance of an audit, declaring legitimate home office expenses doesn’t mean you will be audited. Just make sure your tax deductions fit the IRS’s definition of home office deductions.
- Students don’t have to pay taxes. This myth isn’t an outright lie, but it is certainly not true in all situations. A student is not required to pay taxes if he earned less than $9,000 during the year, but if you earned more than that you may have to pay taxes. Even if you made less than $9,000 it is a good idea to file a tax return anyways, even though you probably won’t have to pay.
- If I don’t make a lot of money I won’t get audited. This is a fairly common myth but it is not true. Anyone can get audited, so it is best to make sure to keep your tax records for at least 3 years in case you are audited.
Have tax questions? Want to have Saint Louis CPA James Coats prepare and file taxes for you or your business? Call us today at (314) 645-1614.