7 Common Tax Return Myths You Shouldn’t Believe
Common tax return myths can cost you money, trigger audits, or leave you scrambling to fix errors. From misunderstood deductions to unfounded fears about the IRS, these myths persist year after year—and believing them can derail your tax strategy. Let’s debunk seven of the most pervasive falsehoods and arm you with facts to file confidently.
Table of Contents
Myth #1: “If You File an Extension, You Don’t Owe Taxes Until October”
Reality: Filing an extension (Form 4868) only extends your filing deadline, not your payment deadline.
- You must estimate and pay at least 90% of your owed taxes by April 15.
- Fail to pay? The IRS charges late payment penalties (0.5% monthly) plus interest.
Myth #2: “The IRS Will Never Audit Low-Income Earners”
Reality: While high earners face more audits, the IRS also targets discrepancies like:
- Unreported side hustle income (even $600+).
- Overstated credits (e.g., Earned Income Tax Credit).
- Tip: Report all income, no matter how small.
Myth #3: “You Can Deduct Home Office Expenses If You Work Remotely”
Reality: Only self-employed workers or contractors qualify for home office deductions.
- W-2 employees cannot claim this deduction, even if their employer requires remote work.
- Eligible? Calculate $5/sq ft (up to 300 sq ft) or actual expenses.
Myth #4: “Tax Software Guarantees Your Return Is Correct”
Reality: Software reduces errors but won’t catch everything, like:
- Missed state-specific credits.
- Incorrect filing status (e.g., Head of Household vs. Single).
- Always review entries before submitting!
Myth #5: “You Don’t Need to Report Cash Income”
Reality: The IRS considers cash payments taxable income.
- Platforms like Venmo or PayPal must report $20k+/200+ transactions, but you must report all income.
- Get caught hiding cash? Penalties can reach 75% of unpaid taxes.
Myth #6: “Getting a Refund Means You Did Everything Right”
Reality: A refund just means you overpaid taxes during the year. It doesn’t prove:
- You claimed every credit/deduction.
- Your return is audit-proof.
- Pro tip: Adjust your W-4 to avoid over-withholding.
Myth #7: “Audits Always Mean You’re in Trouble”
Reality: Many audits are simple fixes, like verifying:
- Math errors.
- Missing forms (e.g., 1099s).
- Stay calm: Respond promptly with documentation.
FAQs About Tax Return Myths
- Can I ignore an IRS notice if I know it’s wrong?
No! Respond within the deadline—even to dispute it—to avoid penalties.
- Are gambling winnings taxable if I lost money too?
Yes, but you can deduct losses up to the amount of winnings (if you itemize).
- Do I owe taxes on forgiven debt?
Usually yes, unless it’s a student loan, mortgage foreclosure, or bankruptcy.
- Is the ‘First-Time Penalty Abatement’ a myth?
No! The IRS waives penalties for taxpayers with a clean 3-year history.
How to Avoid Falling for Tax Myths
- Follow IRS.gov: Check official sources, not social media “hacks.”
- Consult a pro: For complex situations like crypto or multi-state filings.
- Keep records: Save receipts, forms, and emails for 3–7 years.
Final Takeaway
Don’t let common tax return myths sabotage your finances. Stay informed, verify claims, and when in doubt, ask a tax expert!
Get expert help with your tax returns today and ensure accuracy and peace of mind—browse top-rated professionals now!