8 Tax Myths to Avoid This Filing Season

Even though tax season was extended, we still want to make sure you have all the information you need to file your 2019 taxes properly. 

There are many misconceptions about taxes that can hurt taxpayers by adding to their uncertainty and by costing them money.

Here are some of the most common tax myths that often trip-up taxpayers during the income tax filing season.

Filing a tax return is voluntary.

Many people think that because our tax system is labeled as “voluntary” it means filing is optional. This is completely false.

In general, anyone who receives taxable income is required to file an annual federal tax return. However, some people may not meet certain income thresholds that require filing depending on their age, filing status and type of income received.

Married couples must file a joint return.

In general, married people qualify for more tax credits by filing jointly. But it’s not the only option.

Married couples can choose to file as “married filing separately” if they find it more advantageous. For example, filing separately could dramatically reduce your student loan payment if it’s based on your income. Crunch the numbers for both scenarios each year to see which one’s the best option for your financial situation.

Only rich people get audited.

While high income-earners have a higher probability of being audited, income isn’t a huge factor in determining who gets audited. The Internal Revenue Service (IRS) looks at many factors and potential red flags.

According to TurboTax, there’s a 1% chance of getting audited if you earn less than $100,000. You should prepare to be audited each year you file a federal tax return. Keep detailed records that support any deductions you claim and maintain all tax-related paperwork for three years.

You don’t have to pay taxes on income made online.

Since most online workers don’t fill out traditional paperwork like a W-9 or have their income taxed through an employer, this rumor is very misleading and can cause long-term damage.

Regardless of how you earn money — whether online or in a traditional wage-earning role — you must report all of your income on your tax returns.

You’ll trigger an audit if you claim a home office.

There’s a misconception that claiming home office deductions are a fast track to an IRS audit. While this may have been the case in the past, home offices have become the norm in today’s digital world.

If you use your home office as your primary place of business and exclusively use it for business purposes, you can deduct expenses related to the business use of your home. In general, the deduction will be based on the percentage of your home that is used for your business.

Tips don’t count as taxable income.

If you make over $20 a month in tips, you’re required to report tips to your employer so they can withhold federal income taxes. If you fail to report your tips, you could incur a penalty equal to 50% of the taxes you owe on those unreported tips.

However, if your employer doesn’t report tip income for workers, you’ll need to keep track of your tips on and report them on your own.

Social security is considered tax-free.

Most people assume social security benefits aren’t considered taxable income. And this is true in some cases. For federal taxes, it depends on your additional income.

To determine if you’ll owe taxes on your social security benefits, add half of your social security income to all other types of income. If the total is more than $25,000 for a single taxpayer, or $32,000 for a married couple filing jointly, you’ll likely owe taxes on your social security benefits.

If the IRS doesn’t contact you by the end of the year, you won’t be audited.

This one is flat-out false. The IRS generally has three years to audit your tax return after it’s filed. If you’re audited, you’ll receive a formal notice in the mail — not by phone, text, or email. If you’re “contacted by the IRS” in any of these ways, it’s a scam.

Taxes are a complicated system, so it’s understandable that there are so many myths floating around out there. If you’re unsure about filing your taxes, you may benefit from reaching out to a tax professional for guidance.

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