11 Biggest Lies About Paying Taxes That People Assume Are True

You’ve worked hard to get ahead financially. So, when tax time comes around, you expect to either receive a tidy sum as a refund or to learn that you don’t owe the government any more money.

However, plenty of Americans buy into some unfortunately common lies about how taxes work.

Believing these 11 popular tax myths can land you in hot water — and possibly cost you some cash — come tax season.

Assembling tax paperwork takes time. If you know you won’t be able to file your tax return paperwork before the April deadline, you can request an extension so you won’t incur additional fines by filing a tax return late.

However, extensions only apply to the tax paperwork, not to any tax money you owe. Even if you filed for a paperwork extension, failing to pay your taxes by the April deadline will result in fees and late fines that can make your tax debt larger.

Hopefully, you aren’t making money by breaking laws or getting paid under the table. But on the off chance that you are, you should know that committing one crime doesn’t give you license to commit another in the form of tax evasion.

Money you earn — even if you obtain it illegally — must be reported as income earned.

If you are among the ranks of employees working remotely, you might assume you can deduct the expense of working from home from your taxes.

However, the home-office deduction actually has fairly rigid guidelines, and you don’t automatically qualify for a deduction simply because you work from home.

Most importantly, W-2 workers generally don’t qualify for a home office deduction. On the other hand, self-employed workers likely do qualify for the tax break.

A tax professional can help you understand whether your situation does or does not make you eligible for the deduction.

On the flip side, don’t assume that just because you took a home office deduction on your taxes, you’ll automatically be audited.

Plenty of small-business owners include home offices on their tax returns, so the deduction isn’t a red flag for the IRS. You shouldn't have to worry as long as you have a valid deduction.

If you earned more than $600 working as a contractor for an individual or business, you’ll receive a 1099-NEC form reporting your income.

However, even if you earned less than $600 and didn’t receive a 1099-NEC, that doesn’t mean the money was tax-free. You still need to list it as income and pay the associated taxes.

Similarly, as long as you earn more than $400 working a side hustle, you need to pay taxes on the income.

Whether you drive for Uber or sell crafts on Etsy, you need to report your income and pay any federal, state, and local taxes.

Earning more than $100,000 a year makes you more likely to be audited than individuals in lower tax brackets. However, that doesn’t mean lower earners never get audited.

Always consider the possibility of an audit, pay taxes correctly and on time, and maintain detailed financial records to protect yourself in case the IRS comes calling.

Virtual cash is still cash. Even if the money you earn can’t be stored in a physical wallet, you need to report it as income and pay associated taxes.

As a student, you likely don’t earn as much as someone out of school with a full-time job. As a result, if you earned below a certain threshold, you might not have to file taxes.

The IRS has not updated amounts yet for the next tax season, but in 2024, you did not need to file a return if you were an individual whose gross income was less than $13,850 in 2023.

However, if you earn more than a tax year’s given threshold, you should go ahead and file as usual.

Even though an accountant might prepare and submit your tax paperwork, filing taxes correctly is up to you.

Always look through your paperwork and make sure to give your accountant the correct documents. While an accountant can help you navigate an audit, any mistakes are ultimately your responsibility in the eyes of the IRS.

While you may be able to deduct certain expenses on your tax return to lower your overall taxable income, that doesn’t make debt a good thing.

You will pay far more in interest than you will get back in your deduction. So, if you are concerned about saving money, try to crush your debt as quickly as possible, even if that debt is deductible on your tax return.

Taxes are complicated at the best of times, so don’t let falling for one of these common tax myths create even bigger headaches.

Talking with a tax professional or financial advisor can help you steer clear of tax-related pitfalls so you stay out of trouble and keep more cash in your wallet.