Top tax myths that you should know
The arrival of the 1040 Booklet in your mail usually marks the beginning of another year for the tax season. And to keep up with the tax season, here are some of the common myths regarding filing for your tax returns.
Myth #1: Federal Income Taxes Are Invalid and Illegal
“ I incriminate myself if I file a tax return”
There are a lot of theories about income tax which tax protestors claim that that filing for tax returns are voluntary or illegal. These arguments are based on word play while some are constitutionally based. For instance, one argument states that the 16th amendment is not properly enacted. Another myth that has been debunked is the claim that only residents living in sovereign states like Washington DC as well as Puerto Rico are allowed to pay income taxes.
The US courts have found that the tax avoidance argument as laughable. People who make these arguments usually end up being liable for their taxes and thus they end up hitting with several tax penalties.
According to the federal appeal courts, some people find themselves drawn to tax protesters movements claim that there is really no legal requirement to pay for the federal income tax.
List of related resource:
Learn more about Tax Penalties
Learn more about Frivolous Tax Arguments
Learn more about the Tax Protest Movement
Learn more about Constitutional Provisions for Taxation
Myth #2: The Home Office Deduction Myth
“I have a home office and thus I can take a home office deduction.”
A common misunderstood tax write off is the deduction for home office workers. A lot of people believe that they can deduct the cost of their tax by claiming to have a home office. But even if you have a desk computer at home, it still does not make you liable to have a home office deduction. The IRS has specific guidelines when it comes to giving out home office exemption.
If you want to qualify for the deduction, it is important that you file for self employment. You can claim this particular deduction if you use your home office exclusively:
– As your primary place of business for your business;
– As place where you deal with your clients in your business.
Some tax professionals say that the home office deduction is misused that the agency of IRS views that the home office deduction is worthy to be audited all the time.
List of related resource:
Learn more about How to Avoid an Audit
Learn more about the Home Office Deduction
Myth #3: Gambling Losses Are Easy To Write Off
” I had just lost a lot of money while gambling in Vegas but I am writing off the loss so everything will be okay.”
Regarding the gambling losses, the IRS is very strict when it comes to writing off your losses in your income tax return.
The IRS has a very simple rule when it comes to gambling losses and that is taxpayers can only claim the deduction on the losses to less than their winnings. For instance, you won $500 in 2007 but you have lost $1,000 in gambling thus under the rule, you can only claim $500 in the losses in your income tax return and not the rest of it.
The thing here is that the IRS is not particular on how you lost your money as long as it falls under the category of gambling thus it really doe not matter if you lost it in a game of poker or in a game of roulette.
However, you have to be cautious about gambling the fact that both gambling losses and gains are considered as red flags that the IRS usually looks for when they create an audit. Thus you need to write off your gambling losses and make sure that you have all the paper works to back you up.
Myth #4: Taxable Incomes Does Not Include Restaurant Tips
“Nobody knows that I am receiving tips so I do not have to report them as income.”
Workers who get tips believe that tips are non taxable. They believe that the IRS does not consider it as taxable income.
Tips are usually given out to an employee and that there are no formal records of the tip amount. The IRS acknowledges that tips are not recorded thus it has created the tip recording responsibilities for employees who are most likely to be getting it such as those who work at restaurants, hotels and other service oriented workers.
If you earn more than $20 in tips monthly from direct or tip pooling arrangements, tips given by clients, then the tax law requires that you report the tip amount to your employer by the 10th of the succeeding month.
For instance, employees in the restaurant have observed this obligation under the Tip Reporting Alternative Commitment Program considering that it is a known fact for these employees to be getting tips from their clients.
List of related resource:
Don’t Forget: Tips Are Taxable Income
Learn more about Tip Reporting and Taxes
Myth #5: e-Filing Does Not Have Benefits At All
“E-filing for income taxes are no good.”
A lot of taxpayers do not believe that filing for their income tax returns over the internet have any benefits. This belief is totally nonsense and that there are a lot of benefits one can get from filing over the internet.
The first benefit is that you will be able to get your tax refund sooner than if you file the traditional way. You can get the refund after three weeks of the receipt if you e-file your return.
This particular filing also provides accuracy than filing the traditional way. IRS has reported that they get fewer errors in e-filing in 2007 compared to when taxpayers paper file their returns.
Your tax return will never be lost in the database of IRS compared to when you file in using the paper. Plus, you will not have to endure standing in long queues just so the IRS can process your papers.
While e-filing is very advantageous, it still has its own drawbacks. For you to be able to file your income tax return, you need to make sure that you have the e-filing software or go to an authorized e-filing service center. This software is free as long as you make $56,000 yearly. Aside from the software, you also need to be comfortable while using the system otherwise it will simply not work for you.