Some Tax Myths Never Die
When we were children, we believed a number of tall tales and myths which eventually proved to be ridiculous and untrue. The concept of magical realism is not lost on us entirely, though, simply because we grow up. In fact, some fables belong only to adults and refuse to die, no matter how much time passes. Perhaps the most compelling among these are tax myths, which can be dangerous to all those who believe them.
The issues of owing taxes and what the IRS can and can’t do when you don’t pay them are often misunderstood. If you’ve never addressed a tax issue yourself, there is no reason for you to be familiar with certain realities. Nevertheless, you can’t afford to fall victim to a few commonly-held tax myths. The consequences can be severe.
You Are Not Legally Required to File Taxes
Some tax fallacies are not only inaccurate; they’re the exact opposite of the truth. Sadly, many an unfortunate taxpayer has received patently incorrect information from friends, consultants or misguided accountants. Failure to file taxes can result in not only severe penalties, but also criminal prosecution. While it is true that some individuals who fall below a certain income threshold or occupy another category of exception may be exempt, virtually all Americans are required to file a tax return. If you have questions about your situation, consult with a reputable tax professional or the IRS directly.
The IRS Writes Off Tax Debts Belonging to Deceased Persons
Death and taxes are both unfortunate certainties, but not even death will always deter the IRS from collecting. If you filed jointly with your partner and then pass on while owing a delinquent tax balance, the debt will still be owed by your surviving spouse. Additionally, any estate you leave behind will first need to be used to resolve any outstanding tax liability. Failing to resolve a tax balance before your demise can prove costly to your loved ones.
Income Earned Abroad Is Not Taxable
Some tax myths are half true and this one’s a good example. In certain instances, you are not required to pay taxes on revenues earned overseas. But there are conditions. First, you’re granted an exemption for income earned while you’re living in another country as long as it falls below a certain threshold. This ceiling typically goes up with inflation, so you’ll want to check IRS.gov for current data. You must also be outside the country for 330 days or more (consecutive or non-consecutive) during a year period in order to qualify. Regardless of your circumstances, no matter where you are in the world, all U.S. citizens are required to at least file an income tax return.
The IRS Has the Power to Incarcerate You If You Fail to Pay a Tax Debt
Certain misconceptions fall on the opposite, severe end of the spectrum. The good news is that the IRS cannot put you away for failing to pay a tax bill. What they can do is come after your money. This includes stripping your checking and/or savings account for a delinquent tax bill, or taking a portion of each of your paychecks until the debt is satisfied. While you can avoid jail time regardless of how high your tax bill climbs, the financial repercussions may be more than you can bear.
The IRS Will Settle a Tax Debt Down to Practically Nothing – If You Know the Loopholes
A common misunderstanding, often perpetuated by unscrupulous or misinformed individuals, is that there are loopholes within the tax code that can enable you to lower your tax debt to pennies on the dollar. Although there are IRS plans, such as the Offer in Compromise, which can allow you to reduce your tax debt, they are notoriously difficult to qualify for. And the approved reduction amount will still be substantial. Don’t fall prey to anyone offering too-good-to-be-true tax solutions.
Being a Responsible Adult
Maybe the best move you have when a tax debt exists is to consult with a licensed tax professional. Such an individual can quickly separate fantasy from reality, and prevent you from making a simple tax problem far more complicated. No matter what tax issue you’re dealing with, knowing the facts isn’t advantageous – it’s imperative.
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