Troublesome Tax Myths

The Internal Revenue Service is reminding taxpayers that falling for common tax season myths could land you in hot water. Due to just about everyone having access to the Internet many of these popular myths are more commonly used as excuses for not paying taxes or filing a tax return. Unfortunately if you mistakenly believe some of these myths you could end up in trouble with the IRS. Here we look at common myths that abound during tax season which should not be taken as sound advice least you end up waging a war with the IRS.

Taxes are voluntary - An argument that is gaining ground among citizens claims that the tax system itself is voluntary. Despite that fact that the word “voluntary” does appear in the instruction book for Form 1040 provided by the IRS themselves, paying taxes is definitely not voluntary. If that were the case, no one would volunteer to separate with more of their hard earned money than necessary. The IRS points out the word is taken out of context in this case. Instead they remind consumers that “voluntary” in this situation refers to the taxpayers option “to determine the correct amount of tax and complete the appropriate returns, rather than have the government determine tax for them from the outset”.

No return – Some people claim they do not have to file a return at all because the IRS is legally obligated to prepare returns for people who do not file. In another twist, citizens file a return but claim zero income and zero tax liability despite the fact they have attached a W-2 showing earned (and taxable) income. By not filing a return or falsely filing a zero return you are only opening yourself up to additional issues with the IRS in the future. The IRS is not required by law to file returns for individuals who fail to do so, however they can determine tax liability for those individuals.

Exempt Income – Taxpayers who claim certain income is exempt should think long and hard before they use this as an argument for not reporting that amount. Using the argument that “compensation received for personal services are not income, because there is allegedly no taxable gain when a person ‘exchanges’ labor for money”, wages would not be taxable income. We all know that is not the case and trying to pull a fast one with the IRS regarding tips and other compensation will never end well for the taxpayer filing the return. If you have a question about certain income, ask a certified public accountant or contact the IRS to find out if the compensation is in fact exempt.

Before submitting your tax return this year, be sure you have not fallen for any myths that could in fact end up costing you more money in the long run. When it comes down to what you think and what the IRS thinks, you will almost always end up the loser when playing word games. For more information on “frivolous” tax arguments, refer to an 80 page document provided by the IRS detailing common tax myths.
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