Top 6 Common Misconceptions About Filing Taxes

According to the National Association of Enrolled Agents -- a group of federally-licensed tax practitioners who specialize exclusively in taxes, there are many misconceptions about filing taxes. Here are six tax myths the association encounters frequently.

MYTH #1

"I'm filing an extension this year, so I don't need to pay anything yet."

FACT

Tax extensions only extend the time you have left to file, not the time you have to pay taxes owed. If you owe a certain amount and file an extension, you have until April 15 to pay regardless of the new filing deadline. Otherwise, interest and penalties begin to stack up.

MYTH #2

"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. Also, whether you reinvest or receive dividends, they are technically still income and must be taxed as such.

MYTH #3

"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 #4

"I'm too young to have to pay taxes."

FACT

Even high school dependents must file a tax return if they earn more than a certain amount each year.

MYTH #5

"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 #6

"Tax preparers only fill out forms that you can do yourself."

FACT

Licensed paid preparers know the intricate (and constantly changing) tax laws, regulations and codes, including how they can be applied for your benefit --i.e., to save you money. Enrolled Agents, America's tax experts, receive annual on- going education and they have un- limited representational rights before the IRS.

 

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