Taxes confuse many people. Because of this, the internet is littered with misinformation on what you can and can’t do with your taxes.
Taking advice from someone that doesn’t understand taxes could cause your legal problems. You may be able to avoid issues with your taxes by clearing up some common myths – here’s what you should know:
Myth #1: Your pet can be claimed as a dependent
Truth: Pets can’t be claimed as dependent on your taxes. Many people claim their pets as a dependent because they’re financially supported. However, one technical problem that prevents people from claiming pets as dependent is that pets aren’t human, unlike children or relatives.
A child may be qualified as a dependent if they are related, under the legal age limit, live with you and if you financially support them. Likewise, a relative may be qualified as a dependent if they live with you, are financially supported and make below the gross income of the fiscal year.
Myth #2: Sales online are tax-free
Truth: Income earned online by a product or service is just the same as income earned offline. This rumor is often spread by people who don’t understand tax reporting for small businesses.
However, Income earned online through auctions or hobbies may not be subjected to taxes. If a used object was sold online for less than it was purchased, then it may not be taxable. Alternatively, if an object appreciated over the years, it may need to be reported on your taxes.
Myth #3: Taxes won’t matter after you die
Truth: Family members may have to file taxes after you die. An estate plan may reduce what taxes your family has to pay. You may create a trust, gift assets or donate to charity – all of which may reduce your taxes.
Myth #4: Trust beneficiaries have to pay taxes
Truth: Trusts are intended to protect beneficiaries from taxes. Trusts, however, may be subject to income taxes depending on the type of trust.
If a trust is revocable, the trustee may have to report income earned on the trust for tax purposes. An irrevocable trust, however, will have to file its own taxes if there was any interest earned that fiscal year.
Knowing how tax codes affect you, your family and your business may save money and avoid fraud and tax avoidance. You may need to carefully plan your estate plan and business strategy with an experienced attorney.