Taxes are complicated and confusing for non-professionals. We wanted to take some time to dispel the most common tax myths for you.
Myth: Tax Filing is Voluntary
When it comes to tax filing, the word “voluntary” doesn’t mean you only have to file if you want to. It simply means you are responsible for calculating (or hiring someone to calculate) the correct amount of taxes you and/or your business owe.
The only people not required by law to file their taxes are those individuals who make too little income to file.
Myth: Cash Transactions Don’t Have to Be Included in Your Taxes
There is a reason many cash transactions are dubbed “under the table.” No matter whether there is little to no paper trail for a transaction, income is income and should be reported on your taxes for the applicable year.
Myth: You Can Claim Home Office Deductions As a Result of the Pandemic
Many people found out the hard way when filing their 2020 taxes that just because you have a home office does not necessarily qualify you for home office deductions. From tax years 2018 to 2025, whether your employee requires it or you request it, employees who work from home (not independent contractors, freelancers, or small business owners) can no longer claim the home office deduction.
While many government and tax programs were amended to make exceptions for pandemic-induced hardships, the home office deduction was not among those amendments.
Myth: Filing for an Extension Will Put You at Higher Risk for an Audit
Many people are told that if you file an extension on your taxes, you are more likely to be audited. Studies have shown, however, that there is no correlation between extension filing and audits conducted. You can rest easy knowing that your extension is just that – an extension.
Myth: Your Fur Babies Can Be Claimed as Dependents
Even if they eat at the kitchen table and have their own bedroom, you can’t claim your pets as dependents. But here are some great tax deductions for pet owners from Forbes.
Myth: Marital Status is Determined by the Status You Held for Most of the Tax Year
While you’d think that getting married or divorced in a calendar year would be reflected in your filing status, it’s actually simpler than that. If you are married on December 31 of whatever tax year you are filing for, you will be considered married. If you were married all year but were divorced according to the laws of your state on December 20th, you are not married.
Myth: When You Go Up a Tax Bracket, Your Entire Income Amount is Taxed at That Rate
This myth is one of the most widely perpetuated by individuals without a firm knowledge of the United States tax system. Yes, tax rates go up as income goes up, but you only pay your highest percentage of taxes on income that is made above that threshold. NerdWallet has a breakdown of the 2020 brackets and how the percentages play out as your income increases.
Myth: Anything Is Deductible if You Create an LLC
Personal expenses are never deductible, full stop. While you see it play out in movies and TV all the time, someone incurs an extravagant expense and simply waves away concern by saying “I’ll just put it on the company card.”
Recently, many TikTok users have seen videos circulating that allege you can write off just about anything so long as you create an LLC first. While technology can be used as a tool to connect and educate people, it’s always wise to double-check sources and talk to a professional if you have tax questions.
Not All Tax Advice Is Equal
If you are in business for yourself, it’s important to know what’s fact and what’s a myth when it comes to tax preparation.
Not sure where to start this year? Sign up for a free eFile360 account.