Myths & Misconceptions: The Truth About 6 Common Tax Myths

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Life Style

Tax season is a stressful, confusing time for many people. Though tax preparation software is available to help you prepare and file your taxes, you may still have questions or believe false information from well-meaning friends or family members. Unfortunately, it’s hard to know what’s right and what’s incorrect when it comes to doing your taxes, so to help clear up some of the confusion, we’re debunking six of the most common tax myths below. 

1. You Don’t Have to Claim Income if You Don’t Receive a 1099 Form

While the IRS requires that all businesses send out 1099s to freelancers/independent contractors who make $600 or more with them each year, sometimes they fail to do so. This doesn’t mean you aren’t responsible for claiming that income on your tax return. You can assume if a deposit is made into your bank account, it is considered income and must be claimed on your taxes. 

Your best bet is to use a simple income tax calculator to estimate the amount of tax you’ll owe at the end of the year, so you can begin saving money to cover your tax obligations. Remember, if you earned income as a freelancer, the IRS already knows you did because the payor must report it to them. So don’t think there isn’t a paper trail simply because you didn’t receive a Form 1099. 

2. Filing a Tax Return is Voluntary

Although the 1040 instruction book says the tax system is voluntary, it doesn’t mean you have an option when it comes to filing a tax return. All the word “voluntary” means in this instance is that each person is responsible for figuring out how much tax they owe. You do not have the option to forgo filing a tax return if you earn income. It is required by law. 

3. You Can Claim Pets as Dependents

Wrong! Although pets meet the expense requirements of a dependent (getting at least half their financial support from their owners), they don’t qualify as dependents because they aren’t human. Even so, hundreds of people try to pass off Daisy, Rover, and Pickles the cat as dependents on their tax returns each year. As cute as this move is, it can land you in trouble because it’s considered fraud. 

4. You Work from Home – You Can Claim the Home Office Deduction

Unfortunately, if you are an employee that receives a W-2 from an employer, you cannot claim the home office deduction. Employees used to be able to deduct unreimbursed expenses on their taxes, but as of 2017, they are no longer able to do so, and this includes the home office deduction. 

5. Gifts and Money Sent by Family or Friends are Taxable

Thankfully, this myth is false. Most small gifts and monetary donations from friends and family members are not taxable, no matter how they are sent or received. So, that birthday check your grandma sent you is safe. 

6. You Don’t Have to Claim Income Received from Illegal Activity

Few people claim income they received from illegal activity, but technically, if you make money, the government wants a cut. The IRS doesn’t care if you’ve robbed a bank, sold drugs, or swindled millions from unsuspecting seniors – they just want their piece of the pie. 

You may be doing something illegal, but don’t think you’ll get away with it forever. The government has its ways – just research Al Capone. 

Completing a tax return can be confusing, but don’t take advice from an untrained do-gooder. If you have questions, consult a professional because myths like the ones listed above are just the tip of the iceberg. 

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