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Common Tax Myths

Common Tax Myths 

Taxes can be complex and confusing. Below are common misconceptions and myths about taxes and the steps taxpayers should be taking to file efficiently and correctly.

Filing Taxes is Voluntary
The confusion arises because the U.S. tax system is characterized—even by the IRS—as “voluntary.” Voluntary in this context means that the taxpayer provides the information that is included in the tax return and calculates the taxes rather than the government doing so for them. The taxpayer is required and responsible for completing the tax return and determining the amount of tax owed.

Students Don’t Have to File Tax Returns
If a student earns a paycheck, they should file a tax return, even if the student is a dependent on their parent’s return. If the amount earned is less than their standard deduction, they should still file, to get a refund of excess tax withheld.

Pets Can be Claimed as Dependents
Many of us consider pets as part of the family. However, they are not considered dependents. The IRS classifies dependents as either qualifying children or qualifying relatives.

I Didn’t Receive a W-2 or a 1099 Form and I Don’t Have to Report the Income
Whatever form of payment (cash or in-kind) a taxpayer receives must be reported as income on their tax return. Examples of an in-kind income is food stamps, benefits provided by an employer, housing subsidies.

There’s no Way to File Your Taxes for Free
Ladder Up offers free tax preparation and electronic filing for qualified Chicagoland clients via the IRS’ Volunteer Income Tax Assistance (VITA) program. There are other VITA sites throughout the U.S.
IRS Free File lets a taxpayer prepare and file their federal income tax form online using guided tax preparation, at an IRS partner site. Per the IRS, it is safe, easy and at no cost to the taxpayer for a federal return if the taxpayer meets the eligibility criteria. Some providers charge a fee for state tax preparation.

Filing an Extension Means I Have Longer to Pay my Taxes
A taxpayer may file an extension to file their return, however, this extension only applies to the tax return, and not the amount due. If the taxpayer owes taxes, they should be paid when the extension is filed. Failure to pay on time will result in interest and penalties being charged on the amount due.

Filing a Paper Return is More Secure
E-filing is more secure than paper filing and will accelerate any refund.