When it comes to taxes, misinformation is everywhere. From outdated advice to urban legends passed around the break room, and these tax myths can lead to expensive mistakes. At Tax Rescue CPA, we’re here to clear the air and help you file smarter. Below are ten of the most common tax myths and what you need to know to avoid penalties, overpayments, or audits.
1. “I Don’t Have to File Taxes If I Didn’t Make Enough Money”
Many taxpayers believe that if they didn’t earn that much, they don’t have to file. While there are in fact, income thresholds that determine if you must file, exceptions exist. For example, if you’re self-employed and earned more than $400 in net income, you’re legally required to file a tax return. You may also be eligible for refundable credits like the Earned Income Tax Credit (EITC), but can only if you file a tax return.
2. “Getting a Tax Refund Means I Did My Taxes Right”
Receiving a tax refund doesn’t mean your tax return is correct. It just means you overpaid the IRS during the year. Inaccurate returns can still trigger audits, even if a refund was issued. It’s essential to ensure your tax return is accurate, not just a refund.
3. “The IRS Will Call or Email Me If I Owe Taxes”
The IRS never initiates contact with taxpayers by phone, email, or text message. If you receive such messages, it’s almost guaranteed to be a scam. Official IRS communication always starts with a mailed letter. Stay vigilant and protect yourself from IRS tax scams.
4. “I Don’t Need to Report Side Gig or Cash Income”
Every source of income is taxable, including freelance income, gig work, cash jobs, and tips. Whether or not you receive a 1099 form, you are still responsible for reporting your earnings. The IRS has increased enforcement around gig economy tax reporting, so underreporting can lead to serious penalties.
5. “I Can Write Off Whatever I Want as a Business Expense”
Tax deductions for business expenses must be both ordinary and necessary. Writing off personal expenses like vacations, groceries, pets, or home improvements under your business can signal the IRS to audit your return. Stick to legitimate business expenses and keep detailed records to support your deductions.
6. “Students Don’t Have to Pay Taxes”
Students who earn income are not exempt from taxes. Whether you have a part-time job, freelance income, or receive taxable scholarships, you may be required to file a tax return. The up side? Students may also qualify for education credits, such as the American Opportunity Credit or Lifetime Learning Credit, which can really help to reduce the tax burden.
7. “I Don’t Need to Keep Tax Records After Filing”
Taxpayers should keep tax records for at least seven years. While the IRS generally has three years to audit, that window can be extended in cases involving substantial underreporting. Keep all W-2s, 1099s, receipts, and supporting documents to protect yourself in the event of an audit.
8. “A Home Office Deduction Increases My Chances of an Audit”
The home office deduction was once considered an audit trigger, but not anymore—especially with the rise of remote work. To qualify, the space must be used exclusively and regularly for business. If you meet those conditions, the deduction can reduce your taxable self-employment income significantly.
9. “I Can Avoid Taxes by Moving to a Different State”
States like Florida and Texas have no income tax, but you still owe federal income taxes. Additionally, if you move mid-year or earn income from another state, you may still have a tax obligation there. Always consider state tax implications before relocating.
10. “I Can Avoid Taxes by Not Filing a Return”
Failing to file doesn’t eliminate your tax liability. The IRS can file a Substitute for Return (SFR) on your behalf—usually resulting in a higher tax bill without any deductions. Non-filers face penalties, interest, and potential collection actions such as wage garnishment or bank levies.
Don’t Fall for Common Tax Myths – Work with a Pro
Tax season is stressful enough without misinformation complicating your situation. If you’re unsure about your filing requirements, deductions, or IRS letters, it’s time to consult a professional.
At Tax Rescue CPA, we specialize in helping individuals and small business owners file accurately and avoid tax trouble.
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