Buzz
With the tax filing deadline of April 15 fast approaching, it’s crucial to distinguish between reality and myth when preparing your returns. As Andy Phillips, Director of H&R Block’s Tax Institute, explains, "Tax laws are often oversimplified to quickly communicate potential benefits or conflicts." When important details are left out, it’s easy to misinterpret the law or rely on the advice of others instead of doing thorough research. Blindly following poor advice could lead to wasted time and unnecessary expenses. Below are some common tax myths to be cautious of this season.
"I can file my tax return using the information from my last paycheck stub."
While the figures on your final paycheck may seem close to the numbers on your W-2, there’s no guarantee they are always accurate. As Phillips points out, this practice is actually not permitted. "Your last pay stub is not an IRS-approved document for filing purposes. It’s common for calculations to be slightly off during the year, and these discrepancies aren’t corrected until year-end. Additionally, things like bonuses and commissions may be forgotten, and nobody enjoys having to file an amended return later."
Phillips recommends waiting for your employer-issued W-2. He also cautions, "Be cautious of tax preparers who promote paystub filing, as this is not permitted." Employers are required to provide your W-2 by January 31st at the latest.
"Being unemployed means I don’t owe any taxes."
If you receive unemployment benefits from any government level, whether local, state, or federal, that qualifies as income. All income must be reported on your tax return. Unemployment benefits are usually reported on Form 1099-G, which is similar to a W-2 in that it shows the amount you received and whether taxes were withheld.
"Any money I donate is a charitable contribution."
While giving without expecting anything in return is certainly admirable, Phillips explains that only donations to IRS-recognized tax-exempt organizations qualify as tax-deductible. Typically, you'll receive a receipt when making a deductible donation. If you're unsure whether your donation went to an eligible organization, you can use the Tax Exempt Organization Search Tool available on the IRS website.
"A tax filing extension gives me extra time to pay my balance."
Unfortunately, an extension for filing does not grant you extra time to pay your taxes. Phillips advises that "you should make every effort to pay your estimated balance when requesting an extension." If paying in full is not possible, submitting your tax return is the first essential step to determine if you qualify for an IRS-approved installment payment plan.
As Phillips clarifies, failing to file on time leads to a penalty for not paying, starting at 5% of the unpaid taxes each month, up to five months, or a minimum of $485 if the return is over 60 days late. The failure-to-pay penalty is 0.5% per month, or part of a month, for any unpaid taxes. This penalty can accumulate up to a maximum of 25% of your unpaid balance.
By avoiding these common tax myths, you can sidestep costly errors and stress this tax season. Reach out to a skilled tax professional if you're uncertain or dealing with complicated tax situations.
