Learn the top tax myths and misconceptions. Know the facts at FindLaw.
The annual arrival of the 1040 Booklet in the mail marks the beginning of another new tax season. In keeping with this special time, FindLaw.com has set out to debunk some common myths regarding the filing of tax returns. Keep these truths in mind as you prepare your "love letter" (aka tax return) to the IRS.
Myth #1: Federal Income Taxes are Illegal, Invalid and/or Voluntary"Filing a Casino Refund tax return violates my Fifth Amendment right against self-incrimination!"
Wrong. There are many different theories under which tax protestors claim that the payment of taxes and the filing of tax returns are voluntary and/or illegal. Some arguments are constitutionally based, while others hinge upon semantics and word play. For example, one flawed argument states that the 16th Amendment, which authorizes collection of income taxes, was not properly enacted. Another debunked contention claims that only residents of "sovereign" states, such as Washington D.C. and Puerto Rico, are required to pay income taxes.
The truth is that U.S. courts have universally found these tax avoidance arguments to be frivolous. Furthermore, the people who make these arguments usually end up liable for taxes and are sometimes hit with additional tax penalties.
The following quote from a federal appeals court sums up the flawed position of the tax protestor: "Like moths to a flame, some people find themselves irresistibly drawn to the tax protester movement's illusory claim that there is no legal requirement to pay federal income tax. And, like moths, these people sometimes get burned." -- US v. Sloan (7th Cir. 1991)
Myth #2: The Home Office Write-Off Myth"I have a computer and a desk in my home, therefore I can take a home office deduction."
Not necessarily. One commonly misunderstood tax write-off is the home office deduction. Many believe that they can simply deduct the cost of their home computers by claiming a home office. However, just because you have a desk and a computer in your home does not mean you qualify for the home office deduction. In fact, the IRS has very specific guidelines for the home office exemption.
To qualify for this deduction, you need to be self-employed. According to the IRS, "You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively:
As your principal place of business for any trade or business; or
As a place to meet or deal with your patients, clients or customers in the normal course of your trade or business.
According to some tax professionals, this deduction is so frequently misused that the IRS views taking the home office deduction as one factor that may contribute to receiving an audit.