As we approach “tax day” there is often misinformed chatter about what is acceptable when filing your taxes. There are rumors out there about various deductions and loopholes that can potentially get you into trouble if followed. Here are a few:
1. Filing Taxes are non-mandatory.
Believe it or not, there are a considerable number of people who contend that since the Form 1040 refers to the tax system as “voluntary”, there exists no obligation to pay taxes. Some even believe that paying taxes is illegal! This is absolutely false – you must and should file a tax return. The term “voluntary” means that each taxpayer has the personal responsibility to determine the correct amount of taxes they owe.
2. Students do not need to pay taxes.
There is partial truth to this. A student does not need to pay taxes if they earn less than $9,000 during that tax year. Nonetheless, all students should file, because if they had an employer who withheld money, they are probably owed a refund.
3. “I do not make enough money to get audited.”
Wrong. Your income has less to do with being audited than you might think. Statistically speaking, individuals who make over $100,000 per year tend to get audited twice as often, but there is still a 1% chance you will get audited. In summation, keep detailed records of anything that could be considered a questionable deduction.
4. Restaurant tips do not count as taxable income.
The IRS does view tips as taxable income. Due to the informality of receiving a tip and the lack of precise records, the IRS has created tip reporting responsibilities for workers who receive them. If in any month you earn more than $20 in tips, federal tax laws require you to report that amount to your employer by the 10th of the following month.