Tax season was officially launched on 27 January — and now taxpayers can experience the familiar feeling of anxiety: about 1 in 3 Americans say they are worried about preparing their taxes, says USA Today.
Tax anxiety is higher among young Americans, according to the study, found that more than 40% of generation Z (born after 2000) have a tax trouble, compared to less than 30% of generation X (born between 1960 and 1979). The reason may be related to life experiences, as generation X taxpayers aged 40 to 55 years old filed the Declaration for much longer.
Kindle these fears are some common misconceptions that can hurt taxpayers: increase their anxiety and even cost them money.
In the core of the problem is the complex tax system, which annually cost Americans 200 billion dollars in time and funds spent on the preparation of their tax returns. This estimate excludes tax payments.
“A lot of confusion around tax returns related to the General lack of understanding of how taxes, says Dan Marino, the financial advocate of Credit Karma. — It was obvious in our latest poll, where we found that more than half of taxpayers don’t understand, where are their tax returns”.
If the taxpayer does not understand that a tax refund is money that they already paid to the state, it can hurt. In fact, refunds are an interest-free loan to the US government by taxpayers. According to some experts, although the tax refund can give you a chance to catch up on bills or to buy something special, some consumers would have been better to adjust your withholding to avoid overpayment of taxes.
Here are a few misconceptions, which it is urgent to get rid of.
Myth 1: error in taxes will affect your credit rating
About one-third of taxpayers mistakenly believe that an error in a tax return will damage the credit rating. This is stated in a recent survey of Credit Karma Tax. But it’s not, say tax experts.
“Everyone understands that credit rating is important, but people may not realize that is connected with it, says Matt Sotir, financial specialist of the Equitable Advisors. There is nothing irrational in their expectations that this will affect the situation, but the Deposit tax returns excluded from the credit ratings”.
This change occurred in 2018, when three national credit bureaus — Experian, TransUnion and Equifax has removed all tax withholding or debts owed to the IRS from your credit reports due to studies pointing to problems with accuracy.
In other words, consumers should not unnecessarily worry about an error in their tax returns will affect their credit rating. Credit scores “are a best guess of a credit Bureau about whether you pay your bills on time, and that has nothing to pay state and Federal taxes,” adds Marino.
Myth 2: if you file for a tax extension, it is possible to pay the IRS until October 15
Last year, more than 1 in 10 taxpayers have demanded six months extension for filing taxes. A common misconception is that the extension gives you more time to pay in favor of the IRS, but it’s not.
As a rule, taxpayers request an extension if they need more time to collect documents or necessary to make complicated taxes, which require more time for preparation. But the IRS still expects you to pay any owed taxes by April 15, that sometimes do not understand the taxpayers, say Luke and Matt Sotir, Finance professionals in Equitable Advisors.
“It doesn’t change your obligation to pay taxes to the IRS,” notes Luke Sotira.
And please note: penalties and interest may accrue, if you don’t pay the IRS before April 15, regardless of whether you filed for an extension.
Myth 3: you don’t need to re-adjust the taxes
During the first full year of the new tax law, the IRS has encouraged taxpayers to adjust their withholding form W-4 with employers. But even if you have checked all last year, you still may have to make an adjustment in 2020, especially if you have another income from work.
In fact, the IRS redesigned the W-4 for the year 2020 and reports that taxpayers with more than one job, or households where both spouses have jobs, you may need to increase the amount of the deduction. For example, the generation of additional income a second job can boost your income and increase the tax burden. This exposes you to the risk of underpayment of taxes if you did not adjust your withholding.
Check your withholding at the beginning of 2020 will be able to help you prepare for the tax year and to avoid unpleasant surprises in April next year.