COMMON TAX MYTHS THAT HURT

Common tax myths that hurt. With tax season officially open, although it has been delayed due to the virus outbreak, taxpayers may test a familiar sense of anxiety. In fact, about one in three taxpayers told Credit Karma Tax in a recent survey they typically get anxious about prepping their taxes. Tax anxieties are higher among younger Americans, with the survey finding that more than 40% of the millennial and Generation Z groups experience tax anxiety, compared with fewer than 30% of Generation X. The reason could be tied to experience, since Gen x–taxpayers between about 40 to 55 years old–have more years of filing returns under their belt. Fueling those anxieties are several common misconceptions that can hurt taxpayers either by needlessly adding to their worries or even costing them money. Common tax myths that hurt.

At the heart of the issue is a complicated tax system that the bipartisan policy center–a think tank that integrates ideas from both Democrats and Republicans–says literally costs Americans $200 billion each year in time and money spent to prepare their returns. That estimate includes tax payments, it says. That can hurt taxpayers if they don’t understand their refunds reflect money they already paid to Uncle Sam. In other words, refunds are an interest free loan to the U.S. Government courtesy of taxpayers. While tax refunds can offer a chance to catch up on bills or buy something special, some consumers might be better off adjusting their withholding to avoid overpaying of taxes.

Myth one that a mistake will hurt your credit score. About one third of taxpayers believe this. In 2018, the three major credit bureaus all removed tax liens from credit scores. Myth two is that if I file an extension I have until October 15th to pay the IRS. Not true. Even if you file an extension, you still have to pay the amount owed, when you file the extension. The extension only gives you more time to prepare the tax return.