Whether you like it or not, it will soon be time to file your taxes. You know, that lovely time of year where you get to see how much of you money the government takes! As a quick bonus myth, filing your taxes ≠ paying your taxes. Most of your taxes have probably already been paid throughout the year. Filing your taxes is just calculating the total amount of taxes that you owe from the previous year.
Self-admittedly, I am by no means in expert in taxes. Often, when I tell people I am a CPA they immediately think I know everything about taxes. Truth is, when you major in Accounting, they typically separate you into two groups: Tax and Audit. I happen to fall on the audit side. That being said, when people ask me about taxes, I’ve found three common myths that people tend to believe. Let’s jump in, shall we?
- Myth: I hope I get a massive tax refund!
Okay, so you may HOPE you get a massive tax refund, but the truth is that a tax refund is actually a bad thing. Now you may be thinking, “What?!? Are you crazy? The government is giving me money. This is awesome!” However, the money the government is giving you is actually your money. Let’s do a quick example:
- In 2016, you had $5,000 taken from your paycheck for federal taxes.
- In 2017, you calculate your taxes and realize you are only required to pay $4,000.
- After filing your taxes, the government sends you a check for $1,000!
That $1,000 could have been yours to spend as you wished during 2016, but instead (out of the niceness of your heart, I’m sure) you decided to lend that $1,000 to the government interest-free for a year! If you find that you are getting a large refund each year, you’ll want to “increase the number of personal allowances” on your paycheck. If you do this, you’ll limit your refund, but find your monthly paycheck increase!
2. Myth: My spouse and I should file separate tax returns.
This one always boggles me. I’m not sure who is out there spreading this rumor, but stop. It’s like people who say Pluto is not a planet. Seriously folks. Stop. Anyway, you should (almost) never file separately from your spouse. Filing jointly offers a larger tax deduction, access to additional credits and deductions, and simplifies the filing process. Overall filing jointly results in LOWER taxes!
Now, the ONLY reasons (yes, I said ONLY reasons) you and your spouse should file separately is in the odd case that you have LARGE medical expenses during the year and you and your spouse make significantly different income amounts OR if you and your spouse both make more than $1,000,000. (If both you and your spouse make more than $1,000,000, feel free to contact me. I’m just a lowly blogger…) Any other reasons for filing separately, are not legit. Don’t listen to your friend. Feel free to tell them they are wrong. Gently, please.
3. I need to hire a CPA to do my taxes.
For the vast majority of American’s this is not true. No, I don’t recommend doing taxes yourself without any assistance, but there are plenty of affordable online programs to help you to file your taxes that will be much cheaper than any CPA will be. (If you make less than $64,000, there are even options to file for free!) Personally I use TurboTax, but most online filing programs will be made equal. Just stick to the big names that you’ve heard of before. The programs will walk you, slowly and simply, through everything you need to know to ensure you get the largest refund possible. There is no (legal) magic wand that a CPA can waive that will save you on your taxes.
Now, if you have large investments, multiple real estate properties, self-employment income, or any other complex matters, then I would recommend consulting with a CPA. But again, most of us don’t need it. So why spend the money?
As always, I’m open to any questions or comments you have!