With the April 15 tax deadline fast approaching, your friends and family may start telling you contradictory things about what is — and what isn’t — OK when filing your taxes. While they may have good intentions, following bad advice about various deductions, loopholes and write-offs could potentially cost you in the long run. As the old saying goes, “A little knowledge is a dangerous thing.”
To save you trouble down the road, here are some of the most common tax myths, debunked.
Myth No 1: If you file an extension, you’re more likely to get audited.
I hear this myth far too often, so let me put this one to bed. Studies have never found any correlation between extending the deadline for filing and getting audited. Another myth I often hear is that if you file early, you’re more likely to be audited. That’s not true either. Moreover, less than 1 percent of tax returns were audited for incomes under $200,000 last year. according to IRS data.
Myth No. 2: An extension to file means an extension to pay.
Filing an extension will give you extra time to file your return, but any amount you owe is still due by April 15. An extension can help you avoid the failure-to-file penalty, but any outstanding balance will be charged a failure-to-pay penalty at 0.5 percent per month and garner interest. No one wants to pay Uncle Sam a penny more than necessary, so e-filing your tax return by the tax deadline will help you avoid this situation.
Myth No. 3: You can claim pets as dependents.
No matter how much we love our pets (or how expensive they can be), you cannot claim your pet as a dependent. However, you can write off expenses related to your pet’s care if those expenses are directly related to protecting your business, as in the case of a guard dog, or if you need a dog for medical reasons, like a seeing-eye dog.
Myth No. 4: Students do not have to file income tax returns.
While this myth can be partially true, it also can be misleading. Your status as a student does not exempt you from having to file income taxes. Whether or not you need to actually file a return is determined by the amount of income you earned during the tax year. For 2014, if you earned at least $10,150 you must file an income tax return, even if you were a full-time student for the entire year. If you earned less than that, it’s typically still in your best interest to file taxes because if you had federal taxes withheld from your paycheck you may receive a tax refund. You may also be eligible for an education credit like the American Opportunity Tax Credit.
Myth No. 5: Claiming the home office deduction is an automatic audit.
Home offices have become increasingly prevalent and common enough that there’s no need to be afraid of claiming a legitimate deduction — simply claiming this deduction is not an automatic trigger for an IRS audit. Just make sure your claim falls within IRS rules.
Myth No. 6: You must file jointly if you’re married.
This myth persists because it sounds like it’s true. However, there is no requirement to file jointly simply because you’re married. That said, in general, filing jointly often minimizes your taxes because of lower tax rates and tax benefits available when filing jointly. There are some cases in which a couple may experience what is called a “marriage penalty” when filing married filing jointly. Two high-income earners may experience a “marriage penalty” if they’re bumped up to the next tax bracket and phased out of certain tax deductions and credits due to higher income. If you and your spouse both earn high incomes, double check to see if filing separately will save you money (tax software can help you do this).
Myth No. 7: You can’t do taxes yourself.
The number of taxpayers filing self-prepared returns increased nearly 6 percent by the end of February, compared to the same time last year, according to the IRS. Apparently other taxpayers know this is a myth, too. Going online and preparing taxes yourself is not only empowering, but it can be easy and no appointment is necessary. With the tax deadline looming, who wants to wait in line?
Hopefully this myth buster cleared the air and helps you make it over the finish line before the tax deadline.
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7 Common Tax Myths, Debunked originally appeared on usnews.com
