Common Tax Misconceptions
Common Taxpayer Misconceptions
There are many misconceptions that taxpayers have regarding the tax laws. What is tax deductible? What is tax deferred? Listed below are some of the most common misconceptions floating around today.
Many believe they don’t need to report stock sales other stocks were bought with the proceeds.
Many taxpayers think that if they reinvested the money from a stock sale, or otherwise didn’t see any cash, that it doesn’t need to be reported. But stock sales outside of retirement accounts must be reported.
My Social Security benefits aren’t taxable.
Depending on the amount of other income that a taxpayer has to report, their benefits may be taxable – but the maximum amount of Social Security benefits that must be included is 85 percent.
I’m a student and only work part-time, so I don’t have to file a return.
Filing requirements are based on filing status, dependency status, amount of income, and whether it is earned or unearned – not whether you’re a student.
It’s my preparer’s fault.
No matter who prepares your tax return, the taxpayer is legally responsible for its contents.
My deadbeat cousin lives in one of my rental properties. He doesn’t pay much, but I can still treat it as a rental.
There are limits on how far below fair market rental value you can go – including the fact that expenses cannot exceed income. There may be other limits as well: The Tax Court has suggested that a fair rent for a family member could be up to 20 percent below market.
My spouse and I separated last year and lived apart for most of the year – so I can file Single.
Unless you were legally divorced or separated as of the end of the year, you cannot file as single.
I’m a signer on a foreign bank account, but not the owner – so I don’t need to disclose it.
This area is under particularly heavy scrutiny right now, and there are a number of factors that determine the need to disclose these accounts and/or the assets. Since the penalties for non-disclosure are pretty severe, clients will want to make absolutely sure that they don’t have a responsibility to report.
If you have any questions, or would like further information please feel free to contact me at rhousmanlaw@gmail.com or 310-276-3550
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