Everyone seems to be a tax expert on social media when it comes to taxes. If you seek tax advice, you’ll get it in a high dose from anyone who cares, but with ever-changing tax laws, it can be hard to know which advice is a tax fact or tax myth without seeking expert opinion. When it comes to filing your taxes, you never want to be on the wrong side of the IRS.
As difficult and tasking as it is, the IRS expects you or anyone filing your taxes for you to stay updated with tax laws to avoid penalties and fees.
To help you stay prepared and informed before the next tax deadline, we’ve prepared a list of tax myths and tax facts you should know.
The Poor People Pay All The Taxes, And The Rich Don’t Pay Any.
One of the biggest tax myths is that the wealthy pay less taxes. When it comes to paying taxes, the IRS doesn’t care whether you’re rich or poor. If you fall into a tax bracket, you have to pay the tax. The USA operates a progressive tax system, and as with any progressive tax system, it means that the higher your income, the higher your income tax rate. About half of the taxpayers in the United States pay income taxes, and the top 1% of income earners pay more than one-third of income taxes.
However, the tax fact here is that other forms of taxes, such as payroll taxes, sales taxes, and excise taxes, are regressive, which means lower-income earners contribute a larger share of their total income toward these taxes than high-income earners.
Overall, when put together, the US tax system is still progressive because the highest income earners pay the largest share of all federal taxes.
Students Don’t Have To Pay Taxes.
One of the most overlooked tax myths is that students don’t have to pay taxes. While students basically earn less than people working full time and might not make enough to require filing a tax return, the tax system works differently because paying taxes depends on how much income you generate.
The tax fact you should never ignore is that even if your income is below the taxable threshold, you may still want to file if you had taxes withheld from your pay if you made estimated tax payments or if you qualify for certain credits, such as the American opportunity tax credit and the earned income tax credit.
If I Get Paid In Cryptocurrency, I Don’t Have To Pay Tax On It.
Since cryptocurrency isn’t like the regular dollar bill you put in your bank account, it seems easy to think that it can’t be taxable because it exists only in the digital space. However, any form of currency received in exchange for goods or services is taxable. Even if you exchange one form of cryptocurrency for the other, it is still a taxable transaction.
If You Request An Extension, You Don’t Need To Do Anything Until October 16
While filing for an extension will give you more time to prepare your tax return, it doesn’t mean you shouldn’t take any action. According to the IRS, an extension to file is not an extension to pay your due taxes. Your tax balances are still due on April 18. If you request a six-month extension to file your taxes, you have till October 16 to file your 2022 federal tax returns.
Rather than waiting for the October deadline, the IRS advises you to file your taxes when it’s ready. But if you are in an area affected by a FEMA-declared disaster, ensure you stay updated with the latest postponed deadline.
Making Mistakes On Your Tax Return Will Destroy Your Credit
Thinking your tax return will affect your credit score is a tax myth. Your taxes and your credit score are two different but important things. A mistake in your tax return does not affect your credit score in any way. Credit score calculations are not included in your tax return nor tax liens in your credit report.
However, the tax fact here is that not paying taxes at all can affect your credit score because if you don’t pay your taxes on time and get penalty charges from the IRS, you may not be able to settle other bills, which could drop your credit score.
Filing Separately Is Better Than Filing Jointly For Married Couples.
If you thought filing separately could save you and your spouse more money, think again because it’s a tax myth. Filing jointly gets you a lot of benefits.
The tax fact is that filing jointly qualifies you for several tax deductions and credits you might not qualify for if you filed separately. For example, if you file jointly, you and your partner can be eligible for a larger standard deduction, but if you file separately, you won’t be able to take certain deductions such as the Child and Dependent Tax Credit and the Earned Income Tax Credit.
Conclusion
Getting your taxes right is essential, and separating tax facts from tax myths helps you get a clearer picture of how to maximize your tax opportunities. One of the best ways to get your facts right is to work with tax experts like Tax Goddess, who can help you navigate the complexities of understanding tax laws and exploring legal loopholes to ensure you are not paying too much taxes.
