Top Tax Myths for Personal Returns

Tax season often brings confusion, which leads to the spread of widespread tax myths. These misconceptions can cause errors in filing, missed deductions, or even costly penalties. Therefore, by debunking common tax myths, you can plan more effectively and avoid unpleasant surprises. Also, understanding the truth behind these myths is essential for staying compliant and saving money.

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December 26, 2024

Tax Myths About Deductions

Remote W2 employees can deduct work-related expenses

Before the Tax Cuts and Jobs Act of 2017, employees could deduct unreimbursed business expenses. However, this deduction no longer applies to W2 employees. Instead, independent contractors, freelancers, and self-employed individuals can still deduct legitimate work-related expenses, such as internet costs, registration fees, or equipment purchases.

In the past, the IRS scrutinized home office deductions more closely. However, with remote work becoming mainstream, these deductions are now common. Still, W2 employees cannot claim home office expenses. Rather, only self-employed individuals or business owners are eligible as long as they use an office area exclusively for their business.

Tax Myths About Dependents

Pets can be dependents on your return

While pets rely on you financially, they don’t qualify as dependents. However, if your pet is a certified service animal and you itemize deductions, you may be able to deduct certain medical expenses like veterinary care.

A child can be claimed as a dependent on multiple returns

A child can appear on only one return per tax year. For divorced parents, the custodial parent generally claims the child unless they sign Form 8332, transferring this right to the noncustodial parent. Therefore, it’s important to coordinate this with your ex-spouse to avoid conflicts.

Tax Myths About Taxable Income

All taxable income is taxed at the assigned bracket rate

The IRS taxes your income progressively. For example, a single filer earning $90,000 in 2024 doesn’t pay 22% on the entire amount. Instead, taxes are calculated incrementally:

$11,600 at 10% = $1,160
$35,550 at 12% = $4,266
$42,850 at 22% = $9,427

Thus, the total taxes owed would be $14,853, not $19,800.

Illegal income isn’t taxable

Even illegal earnings are subject to taxation. In fact, the IRS requires you to report all income, regardless of its source. Furthermore, failing to do so could lead to penalties or prosecution.

Tax Myths About Extensions

Extensions give more time to pay taxes

Extensions only extend your filing deadline, not your payment deadline. To avoid penalties and interest, taxes owed must be paid by the original due date. Therefore, it’s crucial to plan ahead and file for an extension only when necessary.

Filing an extension increases audit risks

There’s no evidence that filing an extension increases audit likelihood. In fact, an extension can reduce errors, leading to a more accurate return, which may lower audit risks. Nevertheless, ensure your return is filed properly to avoid unnecessary scrutiny.

Busting Tax Myths for Better Financial Planning

Overall, tax myths can complicate your tax strategy and lead to unnecessary stress. However, by understanding the facts, you can avoid costly mistakes and make smarter decisions during tax season. Whether it’s knowing the rules about deductions or clarifying misunderstandings about extensions, separating fact from fiction ensures you stay compliant and maximize your financial benefits.

If you need help navigating the complexities of tax laws, DuPage Tax Solutions offers expert guidance and customized tax solutions.

References

Credits & Deductions for Individuals | Internal Revenue Service. https://www.irs.gov/credits-deductions-for-individuals

Publication 501 (2023), Dependents, Standard Deduction, and Filing Information | Internal Revenue Service. https://www.irs.gov/publications/p501

IRS Provides Tax Inflation Adjustments for Tax Year 2023 | Internal Revenue Service. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023

Publication 525 (2023), Taxable and Nontaxable Income | Internal Revenue Service. https://www.irs.gov/publications/p525

Extension of Time To File Your Tax Return | Internal Revenue Service. https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return

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Top Tax Myths for Personal Returns

Tax Myths About Deductions

Remote W2 employees can deduct work-related expenses