When preparing your taxes, it can often be hard to keep the facts straight. Everybody knows somebody (or multiple somebodies) who think they know everything about filing taxes. But when questions arise, it’s always best to trust the experts – that’s what we’re here for! This week we’re covering a few of the most popular tax “myths” to help set the records straight.
Myth: The filing of a tax return is voluntary.
Fact: The filing of a tax return is mandatory.
Many believe that the paying of taxes is “voluntary,” or optional, due to terminology in the form 1040 instruction booklet that states such. Some like to quote Flora v. United States, 362 U.S. 145, 176, (1960), that states “Our system of taxation is based upon voluntary assessment and payment, not upon distraint.”
While understandably confusing, the word “voluntary” in this case refers to our country’s system of allowing taxpayers to determine the correct amount of tax and complete the appropriate returns, rather than having the government determine their tax from the outset. This information must be “volunteered” by the individual or company.
So, whether we like it or not, tax returns are, in fact, still required.
Myth: Payment of federal income tax is voluntary.
Fact: Payment of federal income tax is mandatory.
Similar to our last myth, some people believe that they are not required to pay federal income taxes, arguing that our system of taxation is based on voluntary assessment and payment. Many will claim that there’s no provision in the Internal Revenue Code or any other federal statute that requires individuals to pay or that makes them liable for income taxes. Some may even go as far as to say that until the IRS can prove to taxpayers the existence of income tax laws, they simply will not pay. (Hint: This is a really bad idea!)
The requirement to pay taxes is absolutely not voluntary and is clearly set out in section 1 of the Internal Revenue Code, which enforces a tax on the taxable income of individuals, estates, and trusts.
Myth: Wages, tips, and other compensation received for personal services are not income.
Fact: Oh yes, they are!
This misconception argues that there is no taxable gain when a person “exchanges” labor for money. Some people believe that wages are not taxable income because they have a basis in their labor equal to the fair market value of the wages they receive, thus there is no gain. Another argument is that wages are not taxable when individuals have received compensation in exchange for their time.
In reality, for tax purposes, “gross income” means all income from whatever source derived – and that includes compensation for services.
So yes, all compensation for personal services is in fact taxable.
Myth: Taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment.
Fact: Sorry – everyone must pay!
Some people may tell you that it’s ok to refuse to pay taxes based on religious or personal beliefs. They may mistakenly invoke the First Amendment or the Religious Freedom Restoration Act in support of this false claim.
The First Amendment states, “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government of grievances.” The First Amendment, however, does not support a right to refuse to pay taxes – no matter the circumstance.
Remember, if you’re ever confused about tax laws, we are here to help! Be sure to browse our services page and fill out the form for a free consultation. Or give us a call at 844-841-9857!