Some Tax Myths that Many People Continue to Believe In
Being an experienced taxpayer doesn’t necessarily imply that you already know a lot about filing taxes and the rules and guidelines applicable to your specific situation. Because the tax code undergoes revisions and updates almost yearly and there are specific codes for nearly every individual situation, it is nearly impossible to be fully updated with all these changes. On top of this, knowing that what you think is true is no longer true or that it was never true in the first place can be both distressing and stressful. Because of this, many blindly follow some tax myths and continue to file their tax returns without realizing that they’re already throwing away money. The worst part is that they run into serious IRS issues as a result of not being properly informed.
A number of people believe that filing for a joint tax return is their only option once they get married. This belief is not true. While the status of being married entitles you to filing a joint tax return, it doesn’t mean that you should. You also have the option of filing as ‘married filing separately.’ Most of the time, filing in this manner will cause you to pay more taxes compared to when you had just filed a joint return, but in isolated cases, it actually saves some money. For married couples with two income earners, it’s a good move to file your taxes both ways and see what the differences are. It is a good idea to do this yearly since many characteristics of a person’s tax responsibility often change throughout the year. In doing so, you’ll find out that you can save money when using one option now and then save even more when you make use of the other alternative the next year. Just make sure you talk it over with your spouse or you may have a bigger issue with the IRS.
There are still so many questions regarding the legality of deducting sales taxes. Usually, this misconception is believed by people who have filed taxes before 1986. It was the last year that tax payers are authorized to subtract sales taxes for their purchases. However, today, some states have somehow permitted this kind of policy to take effect once more. Starting in 2004 and then also allowed in 2006 and 2007, people were allowed to deduct their sales taxes from either their state taxes or their federal income taxes. They had to decide between the two types and could not make the deduction on both sets of taxes. There were seven states, Wyoming, Alaska, Washington, Florida, Texas, South Dakota, and Nevada that allowed the tax deduction and citizens of those states actually received a substantial break. To avoid a potential IRS problem, you may want to check every now and then as to the status of this policy.
Another misconception results from the fact that people continue to believe in a law that is no longer effective. Before, anyone aged and older than 55 years old can exclude up to $125,000 in gains or earnings from taxes when his/her house is sold. This is can be availed of provided that this is done only once. With the newer laws now, the provisions are actually much better. In one amendment, the age requirement was no longer effective and the amount for exclusion was increased to $250,000 per person. Thus, a couple can claim tax deductions up to $500,000 from gains made on the sale of a house. Another critical change took effect allowing for the exclusion to be taken every two years, instead of just once throughout the entire lifetime. This means that every two years, anyone can sell a house and exclude up to $250,000 in gains from taxes.
Filed under Blog by 
