5 Tax Myths to Avoid
A common myth about filing income taxes is the idea that "students are exempt" from paying taxes. Students, whether in college or high school, who are employed need to file an income tax return. It doesn't matter whether your student is full time or part time, if they were employed they will need to file a tax return and report the income they've earned. Another myth that surrounds students is that if they file their own return, you cannot claim them as a dependent on your tax return. If your child received more than 50% of his or her support from you, they are still eligible to be claimed as a dependent on your tax return.
Don't fall into the myth that if you're 55-years-old or older that you can sell your primary residence and reap the rewards of the sale tax free. Many years ago, this was the case, but not any more. Many years ago, the 55-year-old home seller was able to exclude up to $125,000 in profits realized as a one-time deduction on a home sale. The home had to be your primary residence to qualify. The age exemption no longer factors into being allowed this exemption.
There is another myth that if you're married you have no choice but to file a joint tax return with your spouse. This isn't true and in some cases it may not be advantageous to file married filing jointly. In the case where one spouse has a lower income but high medical expenses, it could make sense to file married filing separately so the spouse can take advantage of the medical exemption deduction that is available. It's harder to meet this threshold for exemptions if you have a high income.
If you've ever owned a home, you can't qualify for the first time home buyer credit, right? Myth again. Until September 2010, the federal government offered a first-time home buyer credit of up to $8,000 to first time home buyers. The way you qualified for this credit was by having had no ownership interest in a principal residence for three years prior to closing on a newly purchased home. Another way to qualify for a first time home buyer credit was to have owned and lived in a home as your primary residence for five years. When you purchased a new home you could have been eligible to apply for a credit of up to $6,500.
Tax filing is a complicated undertaking and when you think of the myths that abound, they become even more confusing. Talk to a tax professional about tax filing and tax resolution before you fall into the tax filing myths.
Don't fall into the myth that if you're 55-years-old or older that you can sell your primary residence and reap the rewards of the sale tax free. Many years ago, this was the case, but not any more. Many years ago, the 55-year-old home seller was able to exclude up to $125,000 in profits realized as a one-time deduction on a home sale. The home had to be your primary residence to qualify. The age exemption no longer factors into being allowed this exemption.
There is another myth that if you're married you have no choice but to file a joint tax return with your spouse. This isn't true and in some cases it may not be advantageous to file married filing jointly. In the case where one spouse has a lower income but high medical expenses, it could make sense to file married filing separately so the spouse can take advantage of the medical exemption deduction that is available. It's harder to meet this threshold for exemptions if you have a high income.
If you've ever owned a home, you can't qualify for the first time home buyer credit, right? Myth again. Until September 2010, the federal government offered a first-time home buyer credit of up to $8,000 to first time home buyers. The way you qualified for this credit was by having had no ownership interest in a principal residence for three years prior to closing on a newly purchased home. Another way to qualify for a first time home buyer credit was to have owned and lived in a home as your primary residence for five years. When you purchased a new home you could have been eligible to apply for a credit of up to $6,500.
Tax filing is a complicated undertaking and when you think of the myths that abound, they become even more confusing. Talk to a tax professional about tax filing and tax resolution before you fall into the tax filing myths.
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