Some Tax Myths that Many People Continue to Believe In

Being an experienced taxpayer does not necessarily mean that you already know a lot about filing taxes and the rules and procedures applicable to your specific situation. The fact is, it is nearly impossible to be updated with the tax code because it undergoes revisions almost every year and there are specific codes for almost all situations. On top of this, knowing that what you think is true is no longer true or that it was never true in the first place can be both painful and stressful. As a result, many taxes payers complete their tax returns not knowing the whole truth, and essentially, throwing away money. The worst part is that they run into serious IRS problems as a result of this misinformation.

Many people believe that filing for a joint tax return is their only option once they get married. This belief is wrong. While the status of being married entitles you to filing a joint tax return, it doesn't mean that you should. You also have the alternative of filing as 'married filing separately.' While filing under this will cost more than when using a joint return, certain circumstances would allow for some savings. Experts suggest that households with two income earners must file using the two methods and then evaluate which one is more advantageous. This must be done every year as a person's responsibility change within a given year. You may find that you save money filing one way this year, and then save more for  using a different method the next year. Just ensure that you talk it over with your spouse or you may have a bigger issue with the IRS.

There are still so many questions regarding the validity of deducting sales taxes. Mostly, only people who have experience filing taxes before 1986 still believe in this tax myth. 1986 was the last year that a person could deduct some sales taxes for purchases. However, today, some states have somehow permitted this kind of policy to take effect once more. By 2004, 2006 and even 2007, sales taxes can either be subtracted from state taxes or federal income taxes. They had to decide between the two types and couldn't make the deduction on both sets of taxes. Wyoming, Alaska, Washington, Florida, Texas, South Dakota, and Nevada allow this deduction and citizens are truly grateful of this move. To avoid a potential IRS problem, you may want to check once in a while as to the status of this policy.

There is a particular myth that people continue to believe in, but only because it was once an actual law and it is no longer in effect now. 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 taken 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 feasibly exclude up to $500,000 from gains made on the sale of a house. They also made one more crucial change to the old law – you can take the exclusion every two years instead of just once in your life. So every two years you can sell a house and exclude up to $250,000 in gains from taxes. 

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