As you look ahead to doing your taxes this year, there are a number of myths you may think are true for the 2020 tax year. If so, you are not alone — tax myths and misinformation are more common than you may think. And unfortunately, these myths can be costly if they lead to mistakes on your taxes.
Here are the top six tax myths this year:
Myth 1: Anyone working at home can deduct their home office expenses
Just because you’re working from home — as many taxpayers are now — doesn’t mean you can deduct the cost and expenses of the space used for your home office. In fact, this deduction only applies to people who are self-employed. But, some taxpayers may also be eligible if they are employed by someone else but use the space to engage in self-employment activities.
Myth 2: You can claim dependent exemptions for your children
In the past, dependent exemptions allowed taxpayers to claim deductions for dependents (such as children) on their federal tax return. Unfortunately, dependent exemptions are no longer a thing. However, dependents are still very important for tax benefit purposes, including increased credits, child tax credits, filings status determination and many more benefits. Just not a simple tax deduction as in the past.
Myth 3: You must itemize to deduct charitable donations
This was the rule in prior years, but it changed for the 2020 tax year — you don’t have to itemize deductions to take a charitable donation deduction this year. Under the CARES Act, you can deduct up to $300 in charitable donations made to IRS-approved organizations when you take the standard deduction. But if you do itemize, you still get to claim the deduction anyway.
Myth 4: You can file taxes on a postcard
This is not true. When the tax regulations were revised, you may have read in the press about a new “postcard” tax return, but it was never true. The “form” that was circulated to be like a “postcard” is in fact two pages long, plus three schedules!
Myth 5: You’ve already paid taxes on your retirement distribution
Just because you had taxes withheld on your retirement or IRA distributions doesn’t mean you’ve fully paid taxes on it. This is a very common misconception. The income and withholding are still reported on your tax return, along with any other sources of income you may have, including Social Security benefits if you receive them. It’s important to gather all that information together to discuss with your tax professional whether you may still have a tax obligation for 2020.
Myth 6: There’s no longer a tax penalty for not having healthcare coverage
While the tax law went into effect in 2020 to remove the federal penalty for not having health insurance as required under the Affordable Care Act, you still have a responsibility to reconcile your advanced premium tax credit when you have insurance through your state’s Health Insurance Marketplace. Plus, some states do charge penalties if you don’t have health insurance. If you get healthcare through a marketplace, you still may get credits and must report it on your taxes. Ask your tax professional if you need help understanding your healthcare coverage as it relates to your taxes.
“If you have questions or concerns about your taxes this year, don’t wait until the last minute to get professional help,” advises Mark Steber, Chief Tax Information Officer at Jackson Hewitt Tax Services. “Making errors on your taxes can cost you both time and money — not to mention stress and anxiety! Work with a tax pro who is up-to-date on all the latest changes and can advise you on your situation.”
Learn more about getting your taxes completed this year at JacksonHewitt.com.