Filing Your Tax Return: Common Misconceptions

The time to file 2014 tax returns is around the corner. After the yearly tax rule changes and updates most people look to hire paid preparers to help file their returns. There are many guidelines online to help with the process however all situations are not the same and most people may need more specific guidance. Regardless of who will be filing your return, I would like to share some information with you from The National Association of Enrolled Agents http://www.naea.org/ on the most common misconceptions about filing taxes.

1. If you are filing for a tax extension you may think that you do not have to pay anything yet. Beware! A tax extension only allows you to file your report at a later time. If you do not want to incur interest and penalties pay taxes owed by April 15^th regardless of your filing deadline date.
2. If you invest but had big losses in the stock market last year you will probably still owe taxes!  Deduction of capital losses against ordinary income is limited to $3,000 per year. Additionally, if you reinvested or received dividends, they are income and are taxed as such.
3. You must always report income. Regardless of whether you were paid in cash or whether that income was from tips, bonuses, or dividends, it must be reported.
4. Income earned by a dependent in high school working part-time must be reported if the employee wants to receive his or her refund, if more than $6,200 was earned in 2014, or if total unearned income is more than $1,000. There are many situations in which a tax return must be filed regardless of age so it is highly recommended to consult a licensed tax professional.
5. Income earned outside of the U.S. is still taxable and must be reported.
6. Some may think that it is a waste of money to hire tax preparers. Before you decide to file your own tax return make note that licensed preparers are required to know the most up to date tax laws, regulations, and codes and how those can be applied for your benefit.

If you don’t yet have a tax preparer, contact us for referrals at 310-534-5577.  We are happy to help you find someone you’ll want to work with for years to come!