New Tax Myths That Could Cost You Money

As America’s dreaded tax season draws near, taxpayers are inundated with a flurry of advice on how to minimize their tax burden. While some of this information may be sound, much of it is based on tax myths and misconceptions about the filing process. These myths are both an unfortunate consequence of the complexity of the tax code and an intentional effort by some tax professionals to increase their clients’ bill. There will always be some tax myths and misconceptions, because the entire process is very complex. That makes it hard for newcomers or even people with some experience to know what process to go for and what they need to do. In doing so, you always want to think about these myths and whether it’s a good idea or not to follow them.

Say it with me: we’ve had enough! It’s time to dispel some of the most common tax myths and set the record straight. We created a list with some of the most common myths that people encounter and we will help you figure out which ones of these myths are true and which ones are something you don’t want to follow anymore.

TAX MYTH #1: You Must Itemize to Get a Tax Deduction

One of the most pervasive tax myths is that you must itemize your deductions in order to receive any tax relief. This is simply not true! The standard deduction, which is a flat amount that all taxpayers are entitled to, has been increased in recent years and now stands at $13,850 for singles and $27,700 for married couples filing jointly.

In addition, many common expenses can be deducted without having to itemize, including job-related expenses, student loan interest, and contributions to a traditional IRA. In 2023, many US taxpayers are self employed, and use software to make your pay stubs or create their invoices — some of which include itemized breakdowns of expenses. Though this information is great to have, it’s not necessary to itemize under a certain amount.

So don’t be afraid to take the standard deduction — it may be more beneficial than itemizing in your particular situation. A standard deduction will make it easier for you to ensure that you’re getting the best result, and it will also save time. Itemizing is not always going to work for everyone, in some cases it might not actually be worth the effort and something to keep in mind.

TAX FILING MYTH #2: You Can’t Claim a Tax Deduction If You Don’t Have Children

Another common tax myth is that you can’t claim a tax deduction if you don’t have children. Again: this is not true! Though families may be subject to indirect taxes, there are a number of tax deductions and credits available to taxpayers without children, including the Earned Income Tax Credit, the Child and Dependent Care Credit, and the American Opportunity Tax Credit, provided that you qualify for the specific eligibility criteria.

Don’t let the myth that you have to have children keep you from claiming valuable tax deductions and credits. There are plenty of opportunities available to single taxpayers without kids, or for those who don’t think the family life is right for them.

TAX MYTH #3: You Can’t Claim a Tax Deduction for Your Mortgage Interest

This is one of the most costly tax myths out there. The fact is, in the United States, you can claim a deduction for your mortgage interest — and for a lot of other deductible expenses as well. You just need to be aware of what’s available to you and make sure you take advantage of it.

For example, if you have a mortgage, you can claim a deduction for the interest you pay on that mortgage. You can also deduct your property taxes, your state and local income taxes, and a variety of other expenses. The key is to keep track of what’s deductible using the most up-to-date tax package and make sure you claim it on your tax return.

TAX FILING MYTH #4: Education Expenses Are Always Tax Deductible

This is another common tax myth that can lead to taxpayers overpaying their taxes. The fact is, not all education expenses are deductible. In order to be deductible, your education expenses must meet specific IRS criteria.

For example, tuition and fees paid to a qualified educational institution are deductible, but expenses for books, room and board, and travel are not. The deductible education expenses are also dependent on factors such as income, filing status, etc. So make sure you understand which education-related expenses are deductible and which ones are not before you file your taxes.

TAX MYTH #5: You don’t need to file a tax return if you don’t owe any taxes

By far the most common tax filing myth is the idea that you don’t need to file a return if you don’t owe any taxes. The truth is that everyone who earns an income must file a tax return, regardless of whether they owe money or not. However, if you have earned less than your standard deduction, you generally don't have to file a tax return, unless you are required to do so for other different reasons, such as being self-employed.

This may seem unfair, but it’s actually designed to ensure that everyone who earns an income pays their fair share. In the United States, the tax system is based on a progressive structure, which means that higher earners pay a higher percentage of their income in taxes.

This is why it’s so important to file a tax return even if you don’t owe any money  -  by doing so, you ensure that you’re not missing out on any potential credits or deductions that could lower your tax bill. Filing a tax return even if you don’t owe taxes can also result in a refund, so there’s no reason not to file!

TAX MYTH #6 You can take a home office deduction if you work from home

It depends on the situation, but for the most part the answer will be no if you’re a W-2 employee. It was possible to do this before 2018, however nowadays due to the tax overhaul you will not be able to do any of this. If you work on your own and not hired by a business, and use part of your home exclusively for your business, then that might be a possibility, but it’s also on a per-person basis.

When you are an employee, then you won’t have to worry about any of this. It makes a lot of sense to talk with your business about certain deductions. However, any unreimbursed business expenses don’t become deductible here, and you need to think about that.

TAX MYTH #7 Any money and gifts sent from friends are taxable

This is another very common myth that a lot of people encounter and what you will notice is that it’s not true at all. In fact, gifts are always excluded from any income as long as they are below the exclusion amount for that particular year. As of 2023, the gift tax exclusion is $17,000. Some services like Venmo will also require you to report payments over $600 for any services or products. However, that’s valid if you offer a service. If it’s a gift, then that’s obviously not going to matter at all.

TAX MYTH #8 Cryptocurrency is not taxable

That’s the thing, crypto is taxable. In the US you will see that crypto is seen as real estate, and when you have a property exchanged for goods, you will have to pay taxes. Even if you choose to exchange crypto to another form of crypto, that’s a transaction and a taxable one at that. Many think that crypto is not taxable, but that’s not the case at all.

In fact, most if not all cryptocurrency transactions are taxable. That’s why you have to be very careful when it comes to all of this, as you never know what you might expect. We highly recommend to track all cryptocurrency transactions you have and ensure they are filed accordingly. Even if the crypto world is all about not dealing with taxes and it’s all about freedom, this is still taxable.

TAX MYTH #9 You should always use a paper return to file taxes, because this is the most secure method

That’s not true, in fact using tax software is usually the better option. Not only will it allow you to ensure that you file your taxes accordingly, but your data goes to the IRS directly. That delivers the best possible security and speed. With a paper return, it can take a lot of time for the data to reach the IRS. And the truth is that the last thing you want is to have your data arrive late.

While e-filing is faster and just as secure, if not more secure than paper filing, it's important to note that whether you e-file or mail your tax return depends on your preference, as many people still prefer the reassurance of a physical document.

Digital filing is faster and it’s definitely very efficient. You will also be able to avoid things like someone stealing your identity or anything like that. The IRS will also offer a refund within 21 days of filing if you file digitally. By comparison, a paper filing can take 6 months or even more until you get your refund. Plus, you also have to realize that digital filing is usually the most comfortable option. You can also download a copy and have it there, whereas a paper copy is not always the most trustworthy thing.

Conclusion

It’s a good idea to understand these tax myths and know what to avoid and what myths are true. At the end of the day, there are a lot of tax myths out there, and people believe them. It makes sense to take your time and study all these myths, see what is true and what you can do in order to stay safe taxwise. Working with a tax expert and using tax software is always going to help, so try to do that every year!