Debunking common tax myths
If you’re like most Americans, you don’t have all of the answers when it comes to tax filing. That’s why it’s important to do as much research as possible to get up to speed on the latest adjustments and myths surrounding the tax code.
To help, here are six tax myths that the National Association of Enrolled Agents — a group of federally licensed tax practitioners who specialize in taxes — encounters frequently.
Myth: I’m filing an extension, so I don’t need to pay anything before the deadline.
Fact: Tax extensions only extend the time you have left to file, not the time you have to pay any taxes owed. If you owe money and file an extension, you have until April 15 to pay, regardless of the extended deadline date. Otherwise, interest and penalties begin to stack up.
Myth: I had a really big loss in the stock market this year, so I won’t owe any income taxes.
Fact: Deduction of capital losses against ordinary income is limited to $3,000 per year. Also, whether you reinvest or receive dividends, they are technically, still income and are taxed as such.
Myth: They paid me in cash, so I don’t have to report it.
Fact: If it’s income, you must report it. You always report income, regardless of whether it’s cash, tips, bonuses or dividends.
Myth: I’m too young to have to pay taxes.
Fact: Even dependents working part-time while in high school must file a tax return if they earn more than $6,200 in 2014, if they want to receive their refund or if their unearned income is more than $1,000.
Myth: Income earned in a foreign country is not taxable.
Fact: The operative word is “income,” which means it’s taxable. The IRS requires taxpayers to report all earned income, even if it’s earned abroad.
Myth: Tax preparers only fill out forms that you can do yourself.
Fact: Licensed preparers know the intricate (and constantly changing) tax laws, regulations and codes, and how they can be applied for your benefit and save you money. Enrolled agents, America’s tax experts, receive annual continuing education so they are knowledgeable of tax laws and how they can apply to you. Enrolled agents not only specialize in tax preparation and tax planning, they can also represent you before the IRS.