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6 Tax Myths That Could Cost at Tax Time
After a difficult year, many taxpayers could fall for common tax myths. Tax rumors, tax misinformation, and various myths are much more common than you may think. These can lead to costly errors for taxpayers who file their taxes incorrectly as a result. Bad advice can lead to big expenses, big tax bills, or even an IRS audit.
What are some common tax myths that people mistakenly think are true?
Many people may have heard rumors or friends mention some common tax myths -- things that sound too good to be true. Some of the most common myths are:
- If you work from home you can deduct your home office
- You can claim dependent exemptions (like your kids)
- You can claim you pets as dependents and deduct costs to feed and vet them
- You can file your taxes on a postcard
- You’ve already paid taxes on your retirement distribution
- There’s no tax penalty for not having healthcare coverage
There’s been a lot of misinformation around some of these topics, while others are a little complex but get oversimplified as they’re shared, like a game of telephone. Let’s learn what the truth is behind each of these tax myths.
Myth #1 - Deducting your home office if you work from home
This deduction only applies to individuals who are self-employed. If you were employed through someone other than yourself, you can’t claim the home office deduction even if you did work from home. That may come as a surprise to many who have been working from home for months now, but it’s true.
Myth #2 - You can claim dependent exemptions
This tax myth used to be true, but that’s no longer the case. Personal exemptions for dependents ended in 2017 with the passage of the Tax Cuts and Jobs Act.
Myth #3 - You can claim your pet as dependent and claim their food and vet cost.
You can't claim your pet as a dependent, no matter how much like your children they are! If you are self-employed and the dog is part of your business you may be able to claim them and their expenses on the business return.
If the dog is a service dog due to a medical condition you have, you may be able to claim expenses as a medical deduction.
Don't miss out on every credit and deduction you deserve!
Myth #4 - I can file my taxes on a postcard
During the passage of the Tax Cuts and Jobs Act, there was a lot of talk about a new “postcard” tax return. Unfortunately, this isn’t the case. The form to which many referred to as a “postcard” is actually two pages, plus three schedules. Taxes are too complicated to file on something as small as a postcard.
Myth #5 - I’ve already paid taxes on my retirement distribution
Having withholdings on your retirement or IRA distributions doesn’t mean you already paid taxes on it. It’s a common misconception. The income and withholding still go on your tax return, to be added to other withholding and refundable credits. If you have enough withholding, you may get a tax refund. If that’s confusing, talk it over with a Tax Pro.
Myth #6 - There’s no tax penalty for not having healthcare coverage
Many people think the Affordable Care Act (often referred to as Obamacare) doesn’t matter since the penalty was removed. But the reality is that you still have to reconcile your advanced premium tax credit when you have insurance through your state’s Health Insurance Marketplace. Some states are now charging penalties if you don’t have health insurance. For people who get healthcare in the marketplace, they still get credits and MUST report them on their taxes. Not doing so could slow IRS processing, causing delays and triggering notices.
About the Author
Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.
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