Around this time of year, some myths about paying taxes tend to circulate. These myths are different from the difficulties that might come with trying to figure out which deductions and credits you are eligible (and which are still available for you to take). The following three myths about paying taxes can mean serious problems with the IRS, but remember, these aren’t the truth:
Myth #1: You Aren’t Legally Bound to Pay Taxes
One of the most popular myths about paying taxes is that you don’t actually have to. Unfortunately, the 16th Amendment to the Constitution, the highest law of the land, says otherwise. It is legal for the government to levy income taxes, and you have to pay them.
Some of the confusion (intended or otherwise by those who would like to avoid paying taxes) arises from language that has been used in the past, referring to “voluntary assessment and payment.” Many officials have been quite clear in explaining that “voluntary” means that your figure out what you owe and then volunteer the information and the payment without the government coming to get it from you. Of course, if you decide not to volunteer the information, the IRS is likely to come and get it from you anyway. And maybe throw you in jail.
Myth #2: You Don’t Have to Report — And Pay Taxes On — Income Under $400
The confusion surrounding this myth arises from the fact that businesses don’t have to issue 1099-MISC forms unless they pay you more than $400. But that doesn’t mean that you don’t have to report the income. You do. The IRS expects you to report all of your income. This includes the $25 in interest you earned on your bank account this year, even if the bank doesn’t send you a Form 1099-INT. Make sure you are above board with your reporting, or you could find the IRS investigating.
If you are found to have neglected reporting some income, you will be penalized, and charged interest, on top of paying your back taxes.
Myth #3: If You Can’t Pay What You Owe, It’s Better to Just Not File Your Tax Return
The truth is that avoiding your tax return isn’t going to make things better if you can’t afford to pay what you owe. Many people who spent part of the year unemployed, or had some other issue, are finding that it is difficult to meet their tax obligations. However, not filing your tax return is a bad idea. There is a penalty assessed for “failure to file”, and it can be hefty.
If you don’t think you can prepare your return in time for Tax Day, you can file an extension. This gives you six extra months to file your tax return. However, you are still responsible for payment of what you owe, even though you haven’t filed your return.
The IRS isn’t completely heartless. If you can’t afford to pay your taxes, and you owe less than $25,000, you can arrange to pay in installments. The IRS offer loans with reasonable interest rates so that you make more affordable payments. You can even apply online.
There are plenty of other myths about paying taxes out there. If you have a question about paying your taxes, you can visit the IRS web site, or consult with a tax professional.