With just about three weeks left in the tax season, everyone can agree that taxes can be complicated. And sometimes asking questions or searching on Google can lead to even more confusion. When it comes to taxes, one answer does not always fit.
To help us dispel some of the myths we hear from our clients, we turned to our very own Rai M. Kharal, FAIA, EA — a member of The National Association of Enrolled Agents (a group of federally licensed tax practitioners who specialize in taxes) — to shed some light on the common tax myths.
Myth #1: I had a really big loss in the stock market this year so I won’t owe any taxes.
Fact: Deduction of capital losses against ordinary income is limited to $3,000 per year. Also, whether you reinvest or receive dividends, they are technically still income and are taxed as such.
Myth #2: I’m filing an extension this year, so I don’t need to pay anything yet.
Fact: Tax extensions only extend the time you have left to file, not the time you have to pay any taxes owed. If you owe money and file an extension, you have until April 15 to pay, regardless of the extended deadline date. Otherwise, interest and penalties begin to stack up.
Myth #3: Income earned in a foreign country is not taxable.
Fact: The key word is “income,” which means it’s taxable. The IRS requires taxpayers to report all earned income, even if it’s earned overseas.
Myth #4: I was paid in cash, so I don’t have to report it.
Fact: If it’s income, you must report it. You always report income, regardless of whether it’s cash, tips, bonuses or dividends.
Myth #5: I’m too young to have to pay taxes.
Fact: Even dependents working part-time while in high school must file a tax return if they earned more than $6,100 in 2013 or if they want to receive their refund.
Myth #6: Tax preparers only fill out forms that you can do yourself.
Fact: Paid preparers know the intricate and constantly changing tax laws, regulations and codes, and how they can be applied for your benefit and save you money. Enrolled agents receive annual continuing education so they are knowledgeable of tax laws and how they can apply to you. Enrolled agents not only specialize in tax preparation and tax planning, they can also represent you before the IRS.
At Prudent, we’re always here to help you with any questions you may have. Call us, email us, tweet us or stop by!