Misunderstandings can be expensive especially when it comes to taxes. It can create a false picture in the mind of taxpayers and lead to horrible mistakes. Here are the 4 common tax misunderstandings people have in our country.
1. Government doesn’t have legal right to collect income tax
No matter how much you hate tax rules, the truth is that it is the constitutional right of the government to collect the tax. Yes, there are lots of loopholes, mistakes, and problems. But, there is no point in protesting. You’ll get nothing but a headache.
2. Tax deductions aren’t that important
Tax deductions if used wisely can help you save lots of dollars. Let me clarify this with an example.
Sally’s yearly income is $60,000. She pays $10,000 in student loan interest and tax interest. This means, her total tax bill would be $50,000. So, she will get a tax deduction of $2500.
But this is not all. Uncle Sam offers standard deductions to all.
Even if you don’t pay interests on student loans and mortgage, still you’ll qualify for standard deductions. This implies that the IRS is giving you the chance to deduct a specific amount from your tax without you having anything to deduct.
For instance, the standard tax deduction in 2016 is $9300. If your annual income is $60,000, then your tax bill will be $50,700.
3. Audits happen frequently and are very stressful
Tax audits don’t happen frequently. It happens on 1% of income tax returns filed in any year. Tax audits occur when you have not reported a significant source of your income that the IRS has found out by others means. It may also occur when you have claimed a huge amount of tax deduction.
The audit process is pretty simple and straightforward process. Usually, it’s handled through the mail.
Even if a tax audit shows that you owe more taxes, then also you can negotiate the amount.
4. You don’t need to report cash in your income tax returns
Sometimes, we forget to report the income received in the form of cash. Also, many people don’t file income tax when they don’t get any tax form at the end of the year.
This is wrong and the IRS doesn’t take this lightly.
Don’t think that the IRS is a fool. Whenever any business owner gives you money, he would keep a record of it. This would help him to save on his tax at the end of the financial year. The business owner keeps a record of paying you in cash. So, even if you have forgotten about that money, the IRS doesn’t. It gets the information from the business owner.
Even when you’re paid in cash, you still owe tax on it. This is your income after all. It will be tough for the IRS to track your income. But the business owner will notify the IRS. And, once the IRS gets notified, you’ll be in trouble. The IRS may impose a fine and interest on your missed tax payments. This may mean quite a big amount.
Final words
Taxes are confusing even for those people who are good at calculations. Tax stories, myths, and misunderstandings have made the situation worse. They lead to costly mistakes and make people poorer.
Please spread the information you got from this article. There are so many people who spread wrong information amongst masses for their selfish ends. They scare people into making wrong decisions.
