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Some Tax Myths that Many People Continue to Believe In

Your experience of filing taxes for quite a number of years does not assure that you are already an expert in taxation. The fact is, it's nearly impossible to be updated with th...
Views: 964 Created 12/04/2008

Your experience of filing taxes for quite a number of years does not assure that you are already an expert in taxation.  The fact is, it's nearly impossible to be updated with the tax code because it undergoes amendments almost yearly and there are specific codes for almost all situations. On top of this, it is painful to accept that some facts that you believe to be undefined are no longer undefined, and worse, never undefined in the first place. As a result, many taxes payers complete their tax returns not knowing the whole truth, and basically, throwing away money. At worst, this misinformation may lead to serious IRS problems.

A number of people believe that filing for a joint tax return is their only option once they get married. This belief is not undefined. While a married status entitles you to a joint tax return, it does not mean that you must. You also have the alternative of filing as 'married filing separately.' More often than not, filing in this manner will cause you to pay more taxes compared to when you had just filed a joint return, but in special circumstances, it actually saves some money. Experts advise that households with two income earners must file using the two options and then assess which one is more advantageous. This must be done yearly as a person's responsibility change within a given year. In doing so, you'll find out that you can save money when using one option now and then save even more when you utilize the other alternative the next year. Just make sure you talk it over with your spouse or you may have a bigger issue with the IRS.

Deducting sales taxes is yet another misconception that tax payers continually fall for. Until 1986, it was actually allowed for people to deduct some sales taxes for their purchases. This kind of policy, however, was somehow re-instituted in a few states. In 2004, 2006 and 2007, some people are actually allowed to deduct their sales taxes from their state tax or federal income tax. Note that it's ether-or, meaning, they cannot make the deduction on both types of taxes. In Wyoming, Alaska, Washington, Florida, Texas, South Dakota and Nevada, these deductions are permissible and residents became very happy with this federal move. Just to ensure that you're still on the right track and to avoid potential issues with the IRS, you may wish to check on this policy's status every now a then.

One myth is because of the fact that people are not really updated with the laws on taxes. Once upon a time, 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, new laws concerning this issue are way better. The age requirement was lifted and the amount was raised 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 a major twist to the old law - you can take the exclusion every two years instead of just once in your life. Essentially, every two years you can sell a house and exclude up to $250,000 in gains from taxes.

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