Tax Returns

5 tax misunderstandings that could cost you

 Being an experienced taxpayer doesn’t necessarily mean that you already know a lot about filing taxes and the rules and procedures applicable to your specific circumstance such as tax return. Because the tax code undergoes revisions and updates almost yearly and there are specific codes for nearly every individual situation, it’s nearly impossible to be totally updated with all these changes.

You shouldn’t necessarily want a fat tax refund

On top of this, knowing that what you think is true is not anymore true or that it was never true in the first place can be both painful and stressful. Because of this, many blindly follow some tax myths and continue to file their tax returns without realizing that they are already throwing away money.

The worst part is that they run into serious IRS tax return problems as a result of not being properly informed.

Tax credits are more valuable than tax deductions

It is a common assumption for people to automatically file for a joint tax return when they get married. What they don’t realize is that they actually have the alternative of filing under ”married filing separately.” In most occasions, filing under this is more costly than filing a joint tax return. But in special cases, this alternative actually saves you money. For couples with two income earners, experts advise that you file using both ways and see which method is better and allows you to save money. Click here !

You do have to report all income

You can actually make use of one method now, and then the other option the next year, and still find yourself saving a considerable amount of money for both occasions. It’s also a good idea to do this every year as during that period, certain characteristics of a person’s tax responsibility changes. Deciding on which option to take necessitates proper communication with your spouse as doing otherwise may result to bigger IRS tax return problems.

You do have to report all income

There are still several questions regarding the validity of deducting sales taxes. Mostly, only people who have experience filing taxes before 1986 still believe in this tax myth. 1986 was the last year that anyone could deduct some sales taxes for purchases. However, today, some states have somehow permitted this kind of policy to take effect once more. Starting in 2004 and then also allowed in 2016 and 2017, people were authorized to deduct their sales taxes from either their state taxes or their federal income taxes. One important stipulation of this policy is that people can only make the deduction on one type of tax return, and not on both. Wyoming, Alaska, Washington, Florida, Texas, South Dakota, and Nevada allow this deduction and citizens are truly grateful of this move. You may want to check on the status of this law every year just to make sure that you avoid a potential IRS problem.

You can’t get an extension for paying your taxes

There is another myth that many people continue to believe in, but only because it was once an actual law and it’s no longer in effect now. At a certain point in time, anyone aged 55 years old and above may claim $125,000 as exclusion from his/her taxes given that this was part of the gains from the sale of a house. But this benefit can only be availed of once. Now, the new law is actually much better than it used to be. The age requirement was deleted and the amount was increased to $250,000 per person.

So a married couple could feasibly exclude up to $500,000 from gains made on the sale of a house. They also made one more crucial change to the old law, you can take the exclusion every two years instead of just once in your life. So every two years you can sell a house and exclude up to $250,000 in gains from taxes. Check more at: taxreturn247.com.au.