February is here. And with tax season in full swing, you have probably started to hear those annual rumors about what’s acceptable and unacceptable when it comes to filing your taxes.
Around this time of the year, you can run into a lot of bad advice, so here’s a list of some of the most common tax myths that you should avoid:
Myth #1: Filing Taxes is Voluntary
Although this myth may seem counterintuitive, it’s surprising how many people are actually under the impression that filing taxes is completely voluntary because Form 1040 in the instruction book describes the tax system as “voluntary”.
However, Uncle Sam requires everyone to file taxes, even if you haven’t had any income all year.
Myth #2: Animals can Be Claimed as Dependents
Many people are under the impression that anything that’s alive and in your care can be claimed as a dependent, but that’s not the case.
No matter how you love your pet, you aren’t allowed to claim them as dependents.
And while it may be true that pets receive more than half of their financial support from their owners, they’re still not human, and you still can’t file taxes on an animal.
Myth #3: Illegal Activity is Not Taxable
Although it may not make much sense, criminal activity is taxable.
Regardless of whether you are a bank robber, drug dealer or con artist, the government still wants their cut of your income.
No matter how good you are at hiding your illicit activities, the government will eventually find out about it, and tax you on it. Al Capone is a prime example.
Myth #4: Money Made On the Internet is Tax Free
Since many people doing business online don’t report taxes for their income made online, it’s not hard to see how this rumor got started.
However, regardless of whether you generate money online or at a traditional job, the IRS still requires you to declare that income if it’s over 400 dollars per year.
Myth #5: I Don’t Make Enough Money to be Audited
The amount of money you make doesn’t have as much to do with being audited than you may think. There are many more factors that could possibly send up red flags when it comes to a tax audit.
And while it’s true that individuals who make more than 100,000 dollars per year get audited about twice as much as those who make less than that, those who make under 100,000 dollars per year still have a one percent chance of being audited, which is the national average.
To stay safe, it’s best to save any relevant receipts of anything that could be considered questionable income for three years.