Common Income Tax Myths

During this time of year, many questions may come up about tax returns and what exactly needs to be listed or reported. Listed below are common income tax misconceptions, followed by the real answers.

1.      Myth #1: If you are a student and only work part-time, you do not have to file a tax return.

The Truth: Student status does not affect whether or not you need to file a tax return. Age, filing status, dependency status, amount of income, and whether it is earned or unearned affect filing requirements, but student status does not.

2.      Myth #2: You do not have to pay taxes on Social Security Benefits.

The Truth: Social Security benefits may be required to be included as income. The maximum amount of Social Security benefits that may be included in income is 85 percent.

3.      Myth #3: Your broker sold some stock this year and reinvested the money in another stock. Since you didn’t receive money, it’s not taxable.

The Truth: Stock sales (outside of retirement accounts) are required to be reported on your tax return. This includes the sale of mutual funds.

4.      Myth #4: You and your spouse separated last year and lived apart for most of the year, so you can file as Single.

The Truth: Couples that are not legally divorced or separated as of the end of the year are precluded from filing Single.

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IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication (or in any attachment).