Tax Myths That Can Cost You Money

by on October 28, 2010

In order to not get hit by excessive costs due to myths regarding the taxation system, one needs to get acquainted with the regulations adequately. If the myths are avoided, there could be saving of money. Now let’s look at the five major myths regarding tax:

In case of a working child, he cannot be claimed as dependent

This is not so, as if parents are providing more than half of the financial support to their child, who also has the same citizenship, then he can be claimed as dependent and deductions for the child’s medical costs can be availed. Even personal exemption for the child can be claimed, if he doesn’t earn above the threshold of exemption. But, it is not applied to the child under 19 or a full-time student under age 24.

Sales taxes can be deducted

As per the renewed tax structure of 2009, either personal sales taxes or state income taxes can be deducted from your federal income return and not both. The deduction of sales tax is beneficial only in states, which do not charge separate income tax. But, in states where income tax is charged, there is no relevance of getting deduction of sales taxes. But, a product, which has been purchased for the sake of business and sales tax is paid on it, then it can be deducted.

Married have to file a joint return

This myth is not at all true, as even married people have to file their income tax return separately. This leads to payment of more taxes, but the provision can be beneficial in some cases. Taking an instance, separate return filing is advantageous in case, when one partner has significantly higher medical or miscellaneous deductions, which are allowed for exemptions at the rate of 7.5% and 2%, respectively.

Students are not liable to pay tax

As such there is no special tax status for students, but whatever they earn, even in the form of scholarships, it is accounted for tax. Then neither their tax credits nor their complete matriculation matter. But, there are certain tax credits for students that include the Lifetime Learning Credit and the new American Opportunity Credit. Though, distributions are tax-free, but derived income from them are taxable, if falls in taxable income.

People above 55 years of age can sell their house without paying taxes

Age no bar, as per the existing laws. The deduction from tax can be availed as much as $250,000 in gain, if the seller was the owner of the property for at least two out of the last five years. This gain exemption can be attained after every two years, regardless of the age.

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