Ramit Sethi Says These 5 Tax Myths Could Cost You Thousands

It’s easy to get confused when you’re filing your taxes. As tax season progresses, taxpayers are going to great lengths to increase their understanding of taxes and debunk popular tax myths, so they can avoid paying any penalties or receiving an audit. 

Not sure what’s a tax fact or pure fiction? Ramit Sethi, author of “I Will Teach You To Be Rich,” addressed the five most common tax myths on his website. You could stand to lose thousands of dollars if you buy into any of these persistent tax myths.

Even if you don’t think you earned enough money last year to warrant filing a tax return, you still need to file your taxes. 

So why do some people think filing taxes is voluntary? In the article, Sethi said there’s a passage in the Form 1040 instruction book which states the tax system is voluntary. 

The IRS has debunked this tax myth in an article titled “The Truth About Frivolous Arguments.” Section I addresses the contention that it’s voluntary to file a tax return with the law stating the word “voluntary” refers to the IRS system of allowing taxpayers to initially determine the correct amount of tax and complete the appropriate returns. Otherwise, the government would determine tax for taxpayers from the outset. 

Filing an income tax return, according to the IRS, is not voluntary. Sethi’s recommendation is to file your taxes and pay in if it is required of you.

Debunking this tax myth depends on how much the student has made over the course of the year. 

According to the 2023 Publication 501, if your filing status is single and you were under age 65 at the end of 2023, you would need to file a return if your gross income is at least $13,850. 

Filing requirements for most taxpayers often change on a year-to-year basis so it’s always a good idea to review this publication or speak to a tax professional to determine whether you need to file taxes.

Sethi also recommends taking a short quiz provided on the IRS website to figure out if you need to file a tax return. Students taking this quiz will need to provide their filing status, federal income tax withheld and a bit of basic information to help determine their gross income.

Is there a pet tax credit? Nope. However, if you have a guide dog or another service animal, you might be eligible for certain deductions. 

Sethi cited information provided in 2023 Publication 502 which states taxpayers may include in medical expenses the costs of buying, training and maintaining a guide dog or other service animal. 

According to the IRS, “this includes any costs, such as food, grooming and veterinary care, incurred in maintaining the health and vitality of the service animal so that it may perform its duties.”

Even professionals hired to file your tax returns make mistakes sometimes. However, Sethi said it’s you, and not your accountant or CPA, that runs the risk of being audited. 

To mitigate this risk, Sethi said there are a few things taxpayers can do. 

The first is to find a reputable tax preparer to work with. A few helpful rules of thumb include making sure they are licensed as a CPA or tax attorney and asking for their Preparer Tax Identification Number. Preparers with this number are legally authorized by the IRS to prepare federal tax returns for other taxpayers.

The other helpful must-do is to double-check their work. Once they’ve finished filing, go through each item with your preparer to make sure all of the information entered is correct and everything is covered and accounted for.

In a post-COVID landscape, many professionals now work from home or work remote. Working from home has helped spur the tax myth that many may now be eligible for a home office deduction. 

However, to qualify for a home office deduction you must be able to meet two basic requirements. According to the IRS, this part of your home must be used regularly and exclusively for conducting business. It must also be the principal place of your business. 

If you find you meet both basic requirements, Sethi’s post reads that you can start calculating the square footage of your home office to determine the amount you’ll be able to deduct on your tax return.