It’s tax season once again! So, before you start gathering your receipts and compiling your expenses, let’s bust some common tax myths. After all, there are a lot of falsehoods out there about loopholes, deductions, and liabilities. Can you claim your dog on your taxes? Do you have to file taxes if you are a student? Can a married couple get a greater return by filing separately? Read on to find out. If you blindly follow someone else’s bad advice (yes, even Mom can be wrong) you could get into very hot water.
Myth #1: Filing a Tax Return is Optional.
Reality: It depends on your income. If your income is below the standard deduction threshold for 2023 (which is $13,850 for single filers and $27,700 for those married filing jointly), you may not need to file a return. Nonetheless, it is in your best interest to file anyway. Things like the Oregon Kicker, the Earned Income Tax Credit, the Child Tax Credit, the Dependent Care Credit, the American Opportunity Tax Credit, the Health Coverage Tax Credit, and other such rebates could entitle you to a big, fat refund.
Myth #2: In Oregon, You Don’t Have to File a Tax Return to Get the Kicker.
Reality: The Oregon Office of Economic Analysis (OEA) confirmed a surplus for the 2021-2023 biennium, which triggered a record-breaking $5.61 billion “kicker” for the 2023 tax year. That means that taxpaying Oregonians will get as much as 44.28% back on their 2023 tax returns. But, to claim your kicker, you must file a 2023 tax return. Even if you don’t have a filing obligation for 2023, you still must file a 2023 tax return to claim your credit. Want to know what you’ll be getting back? Try the Department of Revenue a What’s My Kicker? Calculator. You’ll need to enter your name, Social Security Number, and filing status for 2022 and 2023.
Myth #3: Filing an Extension Means You Can Pay Your Taxes Later.
Reality: Filing an extension only gives you more time to complete your tax paperwork. It does not allow you more time to pay your debt. When you owe money to the IRS, that money is due on tax day (Monday, April 15, 2024) regardless of whether you file an extension. If you fail to pay on time, you could be charged a penalty each month from the date of your return until the debt is settled. If you can’t afford to pay on time, you have a few options. You can request a short or long-term payment plan, agree to an Offer in Compromise, or apply for a Temporary Delay in the Collection Process.
Myth #4: Cryptocurrency and Cash Income Isn’t Taxable.
Reality: Tax laws apply to cryptocurrency and cash income in the same way they would if you received that income into your bank account via ACH deposits. Failing to report cryptocurrency and cash income could result in an understatement of income, penalties, and interest—and that could trigger an audit. If you trade in cryptocurrencies or receive cash tips as part of your work, you must declare all of this income on your return and pay tax on the applicable portion. If you need help determining what is taxable, consult a tax professional before filing.
Myth #5: If You Are a Student, You Do Not Have to File Taxes.
Reality: If you are a full-time student, you are not completely exempt from having to file an income tax return. That said, the requirements depend on income. If you use scholarships, grants, and fellowships for tuition and supplies, the amount received is tax-free. However, you must report any income or finances used for tuition to determine if you need to pay or return any federal taxes. Technically, if you are a student and your income is under the IRS threshold, you do not have to file, but you probably should. If you qualify for certain credits (such as the earned income tax credit, the child tax credit, or the American opportunity tax credit), you may be entitled to a refund.
Myth #6: You Can Claim Your Pet as a Dependent on Your Taxes.
Reality: Yes, pets are expensive. Yes, we love them like children. But even if your pets feel like family, you can’t claim them as dependents. To the IRS, dependents must have a social security number—and no, you cannot apply for a social security number for your pet. You can, however, deduct some pet-related expenses if your pet is classified as a service or working animal. If your pet meets certain criteria (and you have documentation that supports your pet as certified), you may be able to deduct veterinary bills, pet insurance, food, supplies, boarding, grooming, training, and transportation costs from your taxes. If you think your pet may qualify, ask a tax professional for help before filing.
Myth #7: Married Couples Should File Separately to Save.
Reality: Tax preparers report that this common tax myth pops up every year—even from happily married couples. The theory goes that if each individual in the couple maximizes their credits and benefits, the overall return will be larger. The truth is, the IRS limits some deductions and credits for separate filers so there is more incentive to file jointly. For the most part, joint filers receive higher income thresholds for certain taxes and deductions—which means they can typically earn a larger amount of income and still potentially qualify for certain tax breaks. There are, however, rare exceptions. For example, if you or your spouse has a large amount of out-of-pocket medical expenses to claim.
Myth #8: If You Make Under $200K, You Won’t Be Audited.
Reality: Whether or not you will be audited has little to do with your income. Statistics show that individuals with incomes exceeding $200K are twice as likely to get audited. If you make less, that does not preclude you from facing scrutiny. According to Turbo Tax, in 2022 the IRS audited about 1% of those earning less than $200,000 and almost 4% of those earning more. They also note when you, “raise the threshold to $1 million…the percentage of audited tax returns increases to 12.5%.” Regardless of income, several factors can trigger an audit. These include not reporting all your income, blurring the line on deductions, and failing to meet the reporting requirements on foreign accounts (among other failings and mishaps).
Myth # 9: If You Don’t Receive a 1099 or W-2, You Do Not Have to File a Return.
Reality: Sorry, but if your employer or another agency fails to send you your wage summaries, it is your responsibility to reach out to the employer or agency and secure one. If they fail to respond, you can submit Form 4852 in lieu of that information. With the 4852, you can manually add your payroll and tax payment information from your pay stubs (which you have obviously been saving, right?).
Myth #10: If You Fail to File a Return, the IRS Will Do It For You.
Reality: Okay, this one is technically true, but you are much better off filing for yourself before the deadline. If you fail to file a return, the IRS will file a Substitute for Return (SFR) based on the information that your employer and other sources have submitted. The SFR will not include exemptions that you may qualify for, and you will still be required to pay any penalties that have accrued since the due date. In short, it will cost you.
Tax myths are abundant but getting it wrong could cost you dearly in the form of penalties, accrued interest, missed refund opportunities, or—in rare, but dire circumstances—even jail time. The bottom line is, that when it comes to filing taxes or claiming deductions, if you are uncertain, ask a professional.
The Cost of Filing Taxes for 2023
The best way to avoid mishaps and common tax myths is to get professional help when filing. You can find tax accountants and online preparation services at price points that vary based on the complexity of the return and the amount of time needed to process it. In some cases (if you only need to file a simple tax return or meet certain income requirements), you can even file your taxes for free by using programs sponsored by the IRS or online tax software like Turbo Tax.
Most taxpayers who file the classic Form 1040 with the standard deductions can expect to pay around $220 (which includes your state income tax return) and that fee can be deducted from your return. The good news is that this year, Maps members get even bigger discounts on tax prep and tax prep software. As a member, you can save up to 20% on TurboTax federal products or up to $25 off H&R Block professional tax prep.