10 Common Tax Myths Debunked

“The IRS is incredibly clear that taxes are due April 15,” cautions Tim Steffen, director of advanced planning at Baird Private Wealth Management in Milwaukee.

There are some exceptions, such as when the deadlines to file and make payments are adjusted for taxpayers impacted by certain natural disasters. But generally, if you file for an extension and don’t make a payment by April 15, you’ll be charged a failure-to-pay penalty of 0.5 percent of the amount due for each month you delay paying. The penalty maxes out at 25 percent.

4. Myth: You don’t need to report income if you didn’t get a 1099-K

“Just because you didn’t get a document showing you had income doesn’t mean you don’t have income to report,” Steffen says. This might be the case if you sold belongings on an online marketplace or were paid through a payment app such as Venmo, Zelle or PayPal. 

Payment apps, payment card processors (like Square, Clover or SwipeSimple) and online marketplaces are required to send you a Form 1099-K only if you received more than $5,000 for goods or services in 2024. If, say, you made a few hundred dollars selling handmade jewelry online, you might not receive a 1099-K showing the payments you received — but you still have to report that income, as well as any earnings from freelancing or side gigs, rental property, investments and even gambling winnings.

5. Myth: You can pay all estimated taxes at the end of the year

You might have to make estimated tax payments if you have self-employment income, investment income or other income from which taxes aren’t withheld. Don’t assume, though, that you can wait until the end of the year or when you file your tax return to pay what you owe.

“The IRS wants you to pay your [estimated] taxes evenly throughout the year,” in quarterly payments, Steffen says. If you don’t make your quarterly payments on time, you may be charged a penalty when you file your return.

6. Myth: Only wealthy people get audited

“The income number won’t determine if you get audited,” Steffen says. “It’s what else is on your return.” For example, making math errors, claiming tax credits you don’t qualify for or failing to report income on your return could trigger a tax audit.

That said, “The reality is few people get audited,” Steffen adds. Indeed, for the 2019 tax year — the most recent data available for IRS enforcement activities — the IRS audited only 0.25 percent of all personal income tax returns, according to a study of IRS audit data by the U.S. Government Accountability Office.

7. Myth: Inheritance is always taxed

People often mistakenly assume that any money or property they inherit will be taxed, says Brandon Renfro, a certified financial planner and co-owner of Belonging Wealth Management in Longview, Texas. He’s even seen people prepare to sell large tracts of inherited land because they thought they needed the money to pay a big tax bill.

However, there is no federal inheritance tax. There is a federal estate tax, paid from assets in an estate before they are distributed to heirs, but in 2024 it applies only to estates valued at $13.61 million or more. Just 12 states impose an additional estate tax, and only six have an inheritance tax, according to the Tax Foundation.

8. Myth: A big tax refund is a good thing

Getting a fat refund can feel like winning a jackpot, but refunds aren’t nearly as good as they seem. “Keep in mind that getting a tax refund means the government held your money,” Steffen says. “A tax refund is really an interest-free loan to the government.”

Here's a tip: You could be better off hanging onto more of your money throughout the year by adjusting your tax withholding (talk to your payroll department at work) or making smaller estimated tax payments if you pay quarterly.

9. Myth: Your tax preparer is liable for mistakes on your return

If a tax professional prepares your return and makes an error, don’t assume you’re off the hook because you weren’t the one to slip up. “Every taxpayer is liable for whatever is on their tax return,” Steffen says. 

If you do decide to use a tax professional to help you file, the IRS recommends checking the preparer’s Better Business Bureau reviews and searching the IRS Directory of Federal Tax Return Preparers to ensure they have the proper credentials. Steer clear of any tax preparers who ask you to sign a blank tax return or promise a big refund without fully reviewing your financial situation — both red flags for tax-prep scams.

10. Myth: The IRS will call you if there’s a problem

“The IRS never initiates contact by phone, text or email,” Thompson says. If someone claiming to be with the IRS reaches out to you in one of these ways and asks for a payment or personal information, it’s a scam.

The IRS will mail you a letter if it needs to contact you, Thompson says. If the IRS follows up with a phone call, representatives won’t threaten to call law enforcement or demand payment through gift cards, wire transfers or cryptocurrency — telltale signs you’re speaking to an imposter.

You can report most tax fraud to the IRS using Form 14242.