So how much do you know about taxes? Or more importantly, how much do you think you know? There are a lot of tax facts out there, and just as many tax misconceptions. Unless you’re a tax professional, chances are there are a lot of things about taxes that you might not be aware of, and other simple misunderstandings that could hurt you just as much.
For starters, everyone loves to get a big tax refund. However, that’s not necessarily the best thing. A big refund means that you have allowed the IRS to hold that money for you all year, instead of having it your disposal for whatever you might need, or use it for. It’s much better to actually get a modest refund.
While tax deductions are great, tax credits are where the real money is. Deductions decrease your taxable income, which is nice, but credits can actually reduce your taxable income and in many cases increase your refund.
While it might seem like a no-brainer, the fact is there are still some people that think you don’t have to report all your income. However, you are responsible to report income from all sources, including payroll income, capital gains, gambling winnings, prize money and hobby or self-employment income.
Another misconception people have has to do with filing an extension. Taking this measure not only allows you more time to file your taxes, but also if you work it out with the IRS you can also get an extension on how long you have to pay off your tax debt.
Lastly, while many people fear being audited, your chances of actually being chosen for an audit are quite low. Additionally, you can reduce your chances of being audited by keeping careful records, reporting everything and avoiding any errors in your return.