Love it or hate it, taxes are something we get to deal with annually. Although taxes can be a burden on us all, there are some tax myths that might give us a new perspective. Here are 5 common tax myths that aren’t quite true:
Tax Myth 1: Filing Taxes is Voluntary
Business owners are required to file their taxes every year. When those taxes aren’t filed on an annual basis, it opens the door to late-payment penalties on the years that weren’t filed. As penalties can add up quickly, it’s best to file taxes and pay off the amount owed as quickly as possible. If not, the late payments may add up to more than the original taxes. And, the longer each payment is due to the government, the higher the fees will be.
Tax Myth 2: Illegal Activities are not Taxable
Sometimes we hear news of criminals who couldn’t be caught on the actual crime but were instead caught on tax fraud. Or, of those who didn’t report their taxable income, etc. The IRS tax instructions states that “income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040…” Although it may sound crazy, some people do report these types of income on their tax return because they don’t want be charged for their initial crime and tax evasion.
Tax Myth 3: Home office Deductions Will Cause Instant Audit
It’s legal to take home office deductions. However, sometimes it doesn’t make the most sense to do so. When marking a space as a home office deduction, it must be solely used for business purposes. So, if a guest room or home gym doubles as an office, it wouldn’t classify as an exclusive home office. Or, if an office is also used to store other items unrelated to business, it wouldn’t classify, either. So when it comes to the home office deduction, it sometimes makes more sense to leave the square footage home office off and instead deduct actual expenses such as furniture, computer, cost of electricity that applies to the business.
Tax Myth 4: Students Don’t Have To Pay Taxes
Students with a part-time job don’t necessarily have to put their income in their parents’ tax return. There is a certain income level where students do need to file their taxes. Typically, however, if any withholding was withheld from the student’s wages, they will likely not need to pay taxes anyway if they don’t meet the taxable income level. But, if they don’t meet that level, they should still file to get a tax refund.
Tax Myth 5: Income Made on the Internet is Tax-Free
Any income you make on the internet is taxable. You owe income tax on it, you could owe state tax on it and you could owe sales tax on it. Most online businesses are charging sales tax, so it doesn’t matter where you earn the income, you will probably owe tax on it.
Paying for taxes is never fun for business owners, but it’s something we all get to do. If you have any questions on these myths or any others you’ve heard, feel free to contact us!