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Misconceptions About Taxes that Cause You to Lose Money
By Darrin Mish
People believe that if they have already been filing for their taxes for a long time, they become experts in filing guidelines and requirements. However, unless you are a tax professional, it'll be hard for you to stay updated with all the changes because the tax code is undergoing revisions almost annually and there are hundreds of different codes for almost all situations. Not only is it difficult to remain updated on tax knowledge, it's also hard to realize that some of what you believed to be true is either no longer true, or was in fact, never true at all. Every year, many tax payers complete their tax returns while following tax myths, and in the process they're essentially giving money away, or they can run into a serious IRS problem. Many people believe that when they marry, they have no other choice but to file for a joint tax return. This is simply a false belief. While the status of being married entitles you to filing a joint tax return, it doesn't mean that you must. In reality, you can actually use the option of 'married filing separately.' More often than not, filing in this manner will cause you to pay more taxes compared to when you had just filed a joint return, but in isolated cases, it actually saves some money. Experts advise that households with two income earners must file using the two options and then assess which one is more advantageous. It is a brilliant idea to do this yearly since many characteristics of a person's tax responsibility often change throughout the year. You may realize that you save money filing one way this year, and then save more for using a different method the next year. Just make sure you talk it over with your spouse or you may have a bigger issue with the IRS. Deducting sales taxes is yet another misconception that tax payers constantly fall for. The fact is, sales tax deductions are allowed only until 1986. In a few states, however, this policy was re-instituted in one way or another. In 2004, 2006 and even 2007, people can subtract their sales taxes from the state tax or federal income tax. It must be noted however, that the deduction can only be effected in either of the two, not both. Citizens of Wyoming, Alaska, Washington, Florida, Texas, South Dakota and Nevada received a significant break when this type of tax deductions was permitted. You may want to verify this policy's status every year just to ensure that you are still on the right track, and to avoid potential IRS problems. One myth is brought about by fact that people aren't really updated with the laws on taxes. There was once a time when anyone who was older than 55 years old could exclude up to $125,000 in gains or earnings from taxes when he/she sold his/her house. But this benefit can only be availed of once. Now, the new law is actually better and more specific than it used to be. The age requirement was deleted and the amount was increased to $250,000 per person. So a married couple could possibly exclude up to $500,000 from gains made on the sale of a house. Another major revision in the law is that this exclusion can already be availed of every two years. So every two years you can sell a house and exclude up to $250,000 in gains from taxes.
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