Top 6 Common Misconceptions About Filing Taxes
Brought to you by the National Association of Enrolled Agents — a group of federally-licensed tax practitioners who specialize exclusively in taxes.
Myth #1
"I'm filing an extension this year, so I don't need to pay anything yet."
Fact
Tax extensions only extend the time you have left to file, not the time you have to pay taxes owed. If you owe a certain amount and file an extension, you have until April 15 to pay regardless of the new filing deadline. Otherwise, interest and penalties begin to stack up.
Myth #2
"I had a really big loss in the stock market this year, so I won't owe any income taxes."
Fact
Deduction of capital losses against ordinary income is limited to $3,000. Also, whether you reinvest or receive dividends, they are technically still income and must be taxed as such.
Myth #3
"They paid me in cash, so I don't have to report it."
Fact
If it's income, you must report it. You always report income, regardless of whether it's cash, tips, bonuses or dividends.
Myth #4
"I'm too young to have to pay taxes."
Fact
Even high school dependents must file a tax return if they earn more than a certain amount each year.
Myth #5
"Income earned in a foreign country is not taxable."
Fact
The operative word is income, which means it's taxable. The IRS requires taxpayers to report all earned income, even if it's earned abroad.
Myth #6
"Tax preparers only fill out forms that you can do yourself."
Fact