Myth 1: It’s good to get a large tax refund.
Although it’s exciting to find out you’re getting a tax refund, it’s important to keep in mind where that money came from. Most refunds come from money that has been taken from your paychecks throughout the year. So getting a refund means you gave Uncle Sam an interest-free loan throughout the year. Instead of planning on a refund at tax time, consider adjusting your withholding so you get to keep more of your paycheck throughout the year.
Myth 2: Business owners can deduct all of their expenses.
As a business owner, I always like it when my friends say, “You pay for it. You can deduct it”. First of all, something has to be a legitimate business expense before you can deduct it. Second, many business costs like meals and entertainment are only partially deductible. And you can never deduct personal use of business assets like a car or cell phone.
Myth 3: You don’t have to pay your taxes by April 15th if you file an extension.
Filing an extension will give you additional time to “file” your taxes, but not to “pay” them. Any money you owe has to be paid by April 15th or you could owe substantial penalties and interest. You might want to send in an estimated tax payment if you’re filing an extension just to make sure you don't end up paying more than you need to.
Myth 4: Social Security benefits aren’t taxed.
Up to 85% of your Social Security benefit could be taxable under current law. The Social Security Administration’s website states that benefits usually aren’t taxed unless you have “substantial income in addition to your benefits”. They must have a different definition of “substantial” than I do because individual and joint filers could start paying taxes on their benefits at $25,000 and $32,000 in “combined income” respectively.
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