5 Popular Tax Myths, Busted
With the tax deadline around the corner we thought it would be fun to look at crazy tax myths on April Fool’s Day. Ginita Wall shares 5 tax myths that you should be aware of.
Hoo boy, I’ve heard it all! People come up with the craziest theories about taxes, and much of what they think is just plain wrong. It’s what you think you know that really isn’t true that can hurt you, so I’d like to clear up a few tax myths.
Myth #1. If you apply for an extension to file your taxes, you’re more likely to be audited. Let me make this perfectly clear: Studies have never found any correlation between extending the deadline for filing and getting audited. There’s another myth that says if you file early you are more likely to be audited. That’s not true either. Less than 1% of taxpayers are audited.
Myth #2. Don’t file your tax return until you have the money to pay the tax due. April 15th is the tax deadline to file your taxes whether or not you have the money. There are penalties that mount up if you don’t, and they can add a hefty sum to your balance due. File on time, and then work out an installment payment plan with the IRS.
Myth #3. If your parents live in a nursing home, they can’t be your dependents. It is true that dependents who are not relatives need to live with you, but that rule doesn’t apply to your parents. If you support your parents, you can claim them as your dependents no matter where they live.
Myth #4. You can write off your dog. We all know dogs can be expensive, but unless your pet related expenses are directly related to protecting your business as in the case of a guard dog or if you need a dog for medical reasons such as a seeing eye dog, you cannot write off expenses related to your pet’s care.
Myth #5. Money you inherit is taxable to you. I hear this one a lot. Here’s the scoop: in almost every state, if there is a tax to be paid, it is paid by the estate of the person who died, and not by you. The eight states that impose an inheritance tax include Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania and Tennessee. But even if you live in one of those states, unless you inherit millions from a person to whom you have no close family ties, you probably are off the hook for inheritance tax. And by the way, you don’t pay tax on gifts you receive either, and gifts you give to another person are not deductible on your income tax return.
Don’t worry about tax myths you hear this April Fool’s Day. TurboTax helps you easily and accurately file your taxes.