I can’t even count the number of times I’ve been at dinner with friends and someone says to me, “I heard you can write off (insert crazy idea here).” There are endless tax myths floating around. And while some myths are good for a laugh, we wouldn’t want you landing in hot water with the IRS. So, let’s review five of the most common tax myths.
You can claim pets as dependents
A dependent is defined by the IRS as “a qualifying child under age 19 (or under 24 if a full-time student) or a qualifying relative who makes less than $4,300 a year.” It does not specifically say a human but it is implied by “child” or “relative”. In 1987, the IRS began requiring taxpayers to provide social security numbers for children they were claiming as dependents. When this happened, 7 million children suddenly disappeared. While these children didn’t actually go missing, they were no longer reported as dependents which indicates those were very likely false filings. While many people have attempted to include their pets as dependents, do not do this! It’s considered fraud.
My accountant is liable for any mistakes
It seems reasonable to assume that if you’re paying a CPA to complete your taxes, they should be held liable for any mistakes. However, at the end of the day, the IRS is concerned with you as an individual. Whether or not the accountant made a mistake, it’s your responsibility to review your return to make sure it’s complete and correct, to the best of your knowledge.
Illegal activity is not taxable
The idea that criminals would report income from committing a crime seems ridiculous. And yet, it’s required by the IRS. They don’t care where your income came from, they still want their share. Whether it’s stealing, selling drugs, taking bribes, or making money through Ponzi schemes, the IRS considers it reportable and taxable income.
The most notable criminal to be charged with tax evasion is Al Capone. He was linked to murders and extorsion among other crimes but was never able to be charged. He was, however, imprisoned for failing to pay $215,000 in taxes and sentenced to 11 years.
If you file an extension, you don’t have to pay your taxes until you file your tax return
When you file an extension, it does not change the due date for paying your taxes. Filing an extension simply means you have 6 more months to complete your tax return. You should work with your CPA to determine what you think you will owe and make the payment accordingly. Taxes due and not paid by April 15th are considered late and subject to interest and penalties.
You can claim the home office deduction as an employee because of the pandemic
When the pandemic hit, many employees had to shift to working remotely for the first time. For most people, this meant working from home. It seems logical to assume you can take the home office deduction for incurring the costs associated with internet, electricity and even new furniture and equipment for a home office. However, if you are an employee of a business (not self-employed), you do not qualify to take the home office deduction.
This list of tax myths is certainly not all inclusive. There are so many tax misconceptions and deduction errors that can land you in trouble. It’s best to consult with your tax professional regarding your particular tax situation. Oh, and share this list with your friend who needs clarification about claiming their “fur baby” as a dependent.
If you’re hungry for more tax information (and who isn’t?), check out our articles on tax procrastination and how to overcome it, what’s new for filing 2021 taxes, pandemic-related tax deductions (or not), and tax planning explained.