An overwhelming number of Americans do not pay federal taxes. The reason behind this is that most of them are not educated and informed about the subject. Many people believe in tax-filing lies and prevent doing the right thing. That is why you need to get your hands on the right information and avoid getting penalized.
If you are dreading the tax season, perhaps the help of a CPA firm in Colorado can be beneficial. That being said, it is important to identify the major tax filing myths. There are various tax policy misconceptions that millions of people believe in. Let’s look at what they are.
Common tax filing myths
- All gifts are tax exempted.
You may have heard people telling you to make a gift in order to avoid taxes. This advice comes from the misconception that all gifts are tax-exempt. This is not the truth. The fact is that the IRS considers all gifts taxable, except for some, such as medical fees and tuition payments. To avoid an audit, educate yourself about these exemptions.
- Rich people do not pay taxes.
The opposite of this sentence is the truth. The rich households in the US are among the highest taxpayers in the country. In fact, 97% of the income taxes are paid by only half of the US population. The top 1% of the earners pay about 1/3rd of the amount. Apart from income taxes, there are payroll, sales, and excise taxes as well.
- Filing taxes is a choice.
It is not. Many people do not file, assuming that tax filing is only optional and not a legal obligation. The term “voluntary” in the Form 1040 instructions has been mistaken here. It means that you are responsible for calculating your taxes, not that filing is optional. Unless there is a legitimate reason, contesting or not filing can get you in trouble with the IRS.
- Filing jointly is the best option.
Most married American couples assume that jointly filing taxes is the best option. They do not, for once, consider filing separately as they have been told that it costs more. However, there are some instances where filing separately has more benefits. For example, if you have large medical bills and do not want your spouse to be burdened with them, you may file separately.
- A huge refund is a cause for celebration.
Certainly, getting back a huge sum of money in tax refunds makes one happy. However, it also means that more money is being withheld from your paycheck every month than it should. It is like giving the government an interest-free loan.
