The tax code can be a confusing read, clocking in at about 74,000 pages long. Even tax professionals
don’t have every nuance memorized, so it’s no surprise that urban tax myths abound. Unfortunately, it can
be difficult to claim ignorance or blame your accountant if you fall prey
to a common tax myth, so it’s a good idea to learn which myths are actually true and which need to be busted.
Filing taxes can be a tedious process. If you plan to do it yourself, either online or with an old-fashioned pen and paper, it can be all too easy to make mistakes. If you aren’t familiar enough with the tax code to take advantages of available tax breaks, you could lose money. Clerical errors and math mistakes can lead to tax audits, late fees and even jail time for tax fraud. Avoid the following common mistakes to ensure that you get through tax season unscathed.
Many taxpayers confuse deductions with credits, but it’s important to know the difference, because the two tax breaks behave very differently. While a tax deduction lowers your taxable income, a tax credit lowers your tax liability, or the amount you owe, dollar for dollar.
When some taxpayers hear “Alternative Minimum Tax” (AMT), they are filled with dread at the complexity of the rule. Some balk at the perceived unfairness of it, and still others won’t ever learn about the AMT until the IRS informs them that they owe more in taxes. Understanding the AMT is a good way to avoid all three reactions.