Common Tax Myths That Can Cost You Money
Our culture is full of myths, and taxes are no exception. Many people believe half-truths about the tax system. These misunderstandings can lead to costly mistakes.
Let’s break down some of the most common tax myths and explain the real rules behind them.
Myth 1: Students Don’t Have to Pay Taxes
Many people think students are exempt from taxes. This is not true.
Students must pay tax on all taxable income. It does not matter how many classes they take or whether they attend full-time.
However, students may qualify for education tax credits. These include the Lifetime Learning Credit and the American Opportunity Credit, which replaced the Hope Credit. These credits can reduce the tax owed, but they do not remove the filing requirement.
Myth 2: A Working Child Can’t Be Claimed as a Dependent
Parents often assume they lose the dependent claim if their child works. That assumption is incorrect.
You can still claim your child if you provide more than half of their support and meet other requirements. These include age, relationship, and citizenship rules.
Remember, support refers to what is spent on the child, not what the child earns.
Myth 3: Being Over 55 Means You Can Sell Your Home Tax-Free
This rule existed in the past, but it no longer applies.
Today, age does not matter. If the home was your main residence for at least two of the last five years, you may exclude gains from tax.
You can exclude up to $250,000 in gains if you file alone. Married couples filing jointly can exclude up to $500,000. You may use this exclusion every two years if you qualify.
Myth 4: Sales Taxes Are Never Deductible
This myth is partly outdated.
Taxpayers may deduct either state income taxes or sales taxes on their federal return. You must choose one, not both.
This option benefits people who live in states with no income tax or who make large purchases.
Myth 5: Married Couples Must File Jointly
Married couples can choose how they file.
You may file married filing jointly or married filing separately. Filing separately usually results in higher taxes, but not always.
In some cases, separate filing helps. This often applies when one spouse has high medical or miscellaneous deductions that exceed percentage limits.
Final Thought
Tax myths can lead to missed deductions or unnecessary tax payments. Understanding the real rules helps you make smarter financial decisions.
When in doubt, always verify the facts or consult a tax professional before filing.
