Don't fall for these 10 tax myths on April Fools' (or any) day
Friday, April 01, 2022
How's your April Fools' Day going? I hope you haven't been tricked into believing some outrageous claims.
There even are a few April 1 tax pranks out there on social media.
Don't fall for them. If you read or hear something tax-related that sounds a bit sketchy, take the time to check it out with reputable tax sources.
To help in this area, here are 10 tax myths that you definitely can rule out today or any day. No fooling!
1. Young people don't owe taxes.
There are lots of tax breaks for dependent children, including older kids attending college. But the U.S. tax code doesn't exempt folks who earn money from their tax obligations just because they're young or in school. If you earn enough for your age and filing status, the Internal Revenue Service expects you to file a 1040.
2. Married couples must file a joint return.
Most husbands and wives do file one Form 1040. But they don't necessarily have to. Married couples have two filing options, married filing jointly or married filing separately. Separate returns by spouses usually mean higher tax bills for the spouses, but in some situations it's the better filing status move. And if you're still legally married but separated and are caring for a dependent child, you might be able to file as a head of household.
3. Tax filing is voluntary.
Sorry, but this is a load of hooey perpetuated by tax protesters. Folks have latched onto the use of the word "voluntary" but ignored its companion word "compliance." Yes, the U.S. tax system is built on voluntary compliance. This means we are legally bound to pay our taxes and the IRS depends on us to do that on our own. Most of us do. The voluntary compliance rate, according to an IRS analysis of the Tax Gap, is now estimated at 81.7 percent. As for those in the 18.3 percent that don't voluntarily comply, you might want to look over your shoulder for an IRS examiner. Or file your taxes!
4. Illegal income is tax-free.
OK, we all know it was an IRS accountant who took down Al Capone, the FBI's most-wanted Depression Era criminal. Scarface ended up in Alcatraz not for his alleged violent crimes, but because he didn't report and pay federal tax on all his income from his illegal bootlegging operations. The IRS reminder that illegal income is taxable got some added Twitter attention late last year. Yeah, it got some laughs, too. But the bottom, real-not-myth line is that the IRS doesn't care how you get your cash. It just wants its rightful portion of your money, regardless of its source.
5. If I didn't get a 1099, I don't owe any tax.
Wrong, wrong, wrong. Independent contractors might not get a tax statement from a payer if you earned less than $600 for the job. But that $600 figure refers only to the amount that triggers the requirement that a paying entity send out the form. Regardless of how little you earn, and even if you don't get a 1099 or any other documentation, it's taxable income. Sure, it might be difficult for the IRS to track down those various $50 and $100 payments, but if it does find them, you'll owe the taxes on the unreported earnings along with penalties and interest for not including them on your 1040 in the first place.
6. A tax refund means my return is fine.
You filed. You got your refund (finally!). Tax case closed, right? That's usually the case. But that check from Treasury or direct deposit of the amount doesn't necessarily mean you're in the clear. The IRS generally has up to three years to take a closer look at your filing. If finds an issue during that time, you'll be hearing from an agent.
7. The IRS is OK with my federal return, so my state taxes are fine, too.
This usually is true. Most of the states that do collect income taxes use your federal return as the basis for the filing. But anyone who's filled out a state tax return (ah, fond memories of our Maryland filings) knows that there are some tweaks of your federal data on the state forms. And state tax departments are getting pickier as states continue to face their own economic struggles. So double check those state forms so that you don't hear from a state tax auditor.
8. A refund means you don't need to adjust withholding.
Thing change. And changes to things that affect taxes mean that what worked one tax year might not apply to upcoming ones. Taxpayers who experience a life event like marriage, divorce, birth of a child, an adoption, or who no longer can claim a person as a dependent definitely should check their withholding to avoid a tax surprise next filing season. If you find things have changed and might mean you could owe or get a smaller refund, then adjust your withholding. The IRS' Tax Withholding Estimator tool can help you determine your proper amount. Then use those results to complete and submit a new Form W-4, Employee's Withholding Certificate, to their employer as soon as possible. Withholding takes place throughout the year, so it's better to take this step as soon as possible.
9. Amending a return will get you audited.
The idea of facing an IRS audit is terrifying. But the idea that correcting or changing an old 1040 will automatically prompt an audit is wrong. Most people file a 1040X because they discovered they missed something on their original return that will get them a lower tax bill or bigger refund. If, however, you find you made a mistake that will cost you a bit more, you should amend your return anyway. Getting your taxes right is what you and the IRS both want. An effort to do that won't put an IRS target on your back.
10. My tax preparer is liable for any errors.
Sorry, but you are still ultimately responsible for any mistakes on your tax return. If it's a joint filing, both spouses are jointly and severally liable, which is legalese for the IRS will come after you both for any due taxes. You should have paid better attention to the statement on your Form 1040 just above the line for your signature. The one that talks about "under penalties of perjury" …
… and where you "declare that I have examined this return." That puts the onus on you, not your preparer.
And while there are instances where paid preparers can be held culpable, the bottom line (or penultimate section of your return) is that it's your taxes, your return, your responsibility. You agreed to that by inking your old-fashioned John Hancock on a paper form or via an e-signature for electronic filing.
I hope these myth-busting tax tips help you safely get through April Fools' Day and the rest of this (and every) tax season.
You also might find these items of interest:
- Important tax dates in 2022
- Tax statements you need to file your 2021 return
- 10 reasons to file a tax return even if you don't have to
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