When it comes to taxes, there’s a lot of confusion out there. Between the complexity of tax laws and the endless rumors flying around, it’s easy to get caught up in myths and misconceptions. Some people swear by them, some people are downright terrified by them, but the truth is, most of them just aren’t true. So, let’s do a little myth-busting and separate the facts from the fiction!
Myth #1: “If I’m Married, I’ll Pay a ‘Marriage Penalty’”
One of the most common myths in the world of taxes is that married couples always get hit with the dreaded “marriage penalty.” The myth goes like this: if you get married, you’ll automatically end up paying more in taxes than if you were single.
The Reality: This isn’t always true! Yes, it’s possible for some married couples to face a marriage penalty, but it’s not a guarantee. In fact, most married couples who file jointly will actually benefit from a “marriage bonus,” where they pay less in taxes compared to if they were single. This happens because the tax brackets for married couples filing jointly are double the size of those for single filers.
However, the marriage penalty can kick in for high-income earners, especially when both spouses have similar, high incomes. This is because the tax brackets for married couples filing jointly can sometimes push them into a higher tax bracket more quickly than they would be individually. But, for the vast majority of couples, getting married won’t cost you more in taxes—it might even save you some money!
Myth #2: “I Can’t Write Off My Home Office Unless I’m a Business Owner”
A lot of people think you can only claim a home office deduction if you’re running your own business. This can make sense, right? If you’re self-employed, you probably work from home, so you should be able to claim it, right?
The Reality: Not so fast. If you work from home and use part of your home regularly and exclusively for business purposes, you might be able to claim the home office deduction—even if you’re an employee and not a business owner.
Here’s the catch: you have to use that space only for business. For example, if you’re working from the kitchen table, that doesn’t count. But if you have a separate room in your home that’s dedicated solely to work, you could claim the deduction.
Just keep in mind that the rules for claiming a home office deduction for employees are a bit more complicated. In general, employees who work from home need to show that they’re required to work from home as part of their job. Plus, with the Tax Cuts and Jobs Act (TCJA) changes, employees can no longer claim the deduction unless they’re self-employed or freelancers. So, it’s not a free pass, but it’s worth looking into.
Myth #3: “I Don’t Have to Report My Side Hustle Income if I Don’t Make Much”
Let’s be real—side hustles are popular these days, and a lot of people make extra money through things like freelancing, rideshare driving, or selling stuff online. Some people think that if they don’t make a ton of money from their side hustle, they don’t need to report it to the IRS.
The Reality: It doesn’t matter how much you make—you still need to report any income you earn, no matter how small. The IRS wants to know about all of your income, even if it’s from a side gig that brings in only a few hundred bucks here and there.
In fact, you’re legally required to report all income, whether you receive a 1099 or not. If you’re self-employed and make more than $400 in a year, you’ll also need to file a Schedule C and possibly pay self-employment tax. Don’t worry, the IRS isn’t expecting you to hand over every single detail about your side hustle, but they do expect honesty. So, whether you’re making a few bucks or hundreds, keep track of that income!
Myth #4: “If I Don’t File Taxes, I Won’t Get Caught”
It’s tempting, isn’t it? The idea that you could just avoid filing taxes, skip the paperwork, and somehow escape the wrath of the IRS. This myth is especially common among people who make less money or think their tax situation is too simple to need filing.
The Reality: Sorry to burst your bubble, but not filing taxes is a risky move. The IRS has systems in place to catch people who don’t file. If you don’t file a tax return, they’ll likely send you a notice or, worse, start issuing penalties and interest on what you owe. Even if you don’t owe anything, ignoring your tax obligations can trigger other issues, like a tax lien or even legal action.
If you’re struggling to file because you don’t have the money to pay, don’t worry—you can still file your taxes and set up a payment plan with the IRS. It’s much better to file and deal with the payment later than to ignore the situation altogether.
Myth #5: “I Can’t Claim Deductions for My Medical Expenses Unless They’re Really Big”
Everyone knows medical expenses are expensive, but many people think they can’t deduct them unless they’re catastrophic, like major surgeries or long hospital stays.
The Reality: You can deduct medical expenses, but there’s a catch. In order to claim a deduction, your medical expenses need to exceed a certain percentage of your income. For 2023, that’s 7.5% of your adjusted gross income (AGI). So, if you make $50,000 a year, you can only deduct the amount of your medical expenses that’s above $3,750.
Now, don’t assume that means only major medical bills count. Things like prescription medications, doctor’s visits, medical equipment, and even some over-the-counter items might be deductible. If you’ve been spending a lot on healthcare, it’s worth checking if any of those expenses can be written off. But remember—be sure to keep track of all receipts and records, and always check if the expense qualifies.
Myth #6: “Student Loan Interest Is Always Deductible”
Student loan interest is one of those things that seems like it should always be deductible, right? After all, student debt is a huge burden for many people, so it makes sense that the IRS would cut you a break.
The Reality: While it’s true that you can deduct interest on student loans, there are limits on this deduction. To qualify, you need to meet certain income requirements. For 2023, if your modified adjusted gross income (MAGI) is more than $85,000 (or $170,000 for married couples), the deduction starts to phase out.
Even if you qualify, you can only deduct up to $2,500 of the interest you pay. This deduction also doesn’t apply if you’re married and filing separately, so don’t get too excited if you fall into that category. However, if you qualify, it’s a great way to reduce your taxable income and save some money.
The Bottom Line
There are so many tax myths floating around, and it can be tough to figure out which ones are true and which ones are just stories passed down by well-meaning friends and family. The key is to do your research, ask questions, and—if in doubt—talk to a tax professional. Taxes are complicated, but they’re not impossible to navigate. So, next time someone tells you that your taxes are going to be a nightmare or that you can’t do something, just remember: it’s not always true. A little knowledge goes a long way.
Got Questions About Taxes?
If you’re still feeling confused about some tax myths or need clarification, check out our other blog posts for more info. We’re here to help make taxes a little less scary and a lot more understandable!