There are many misconceptions about taxes that people often mistakenly believe to be true. Some of the most common tax myths include the ability to deduct your home office if you work from home, claim dependent exemptions, claim your pets as dependents, file taxes on a postcard, pay taxes on your retirement distribution, and avoid a tax penalty for not having healthcare coverage.
Myth #1: Home Office Deduction for Employees
Only self-employed individuals are eligible for the home office deduction. If you are employed by someone else, you cannot claim the home office deduction, even if you do work from home.
Myth #2: Dependent Exemptions
Personal exemptions for dependents were abolished in 2017 with the Tax Cuts and Jobs Act. It is no longer possible to claim dependent exemptions.
Myth #3: Pet Dependents and Expenses
It is not possible to claim your pet as a dependent. However, if you are self-employed and the pet is part of your business, you may be able to claim them and their expenses on your business return. If the pet is a service animal due to a medical condition, you may be able to claim expenses as a medical deduction.
Myth #4: Postcard Tax Return
The idea of a “postcard” tax return, as discussed during the Tax Cuts and Jobs Act, is not possible. The form referred to as a “postcard” is actually two pages with three schedules. Taxes are too complex to be filed on something as small as a postcard.
Myth #5: Taxes on Retirement Distribution
Withholdings on your retirement or IRA distributions do not mean that you have already paid taxes on them. The income and withholding still need to be reported on your tax return and added to other withholding and refundable credits. If you have enough withholding, you may receive a tax refund.
Myth #6: Tax Penalty for Lack of Healthcare Coverage
Many people believe that the Affordable Care Act’s tax penalty was removed, but this is not the case. You still have to reconcile your advanced premium tax credit when you have insurance through your state’s Health Insurance Marketplace. Some states now charge penalties if you do not have health insurance. People who receive healthcare through the marketplace still receive credits and must report them on their taxes. Failure to do so could delay IRS processing and trigger notices.
In conclusion, it is important to educate yourself on the true facts of taxes to avoid falling for these common myths. It is always best to consult a tax professional for clarification and assistance.