We fear things about which we don’t know much. Or something we have myths about. Though I may not be able to eradicate your fear of ghosts, I can definitely help you to get better acquainted with tax. Let’s have a look at common myths about taxes and its truth.
1. Getting mortgage provides the tax deduction
This definitely isn’t a myth. You can deduct the amount paid toward your mortgage and reduce the taxable income for the year. When people, however, avail a mortgage for the sole purpose of reducing taxable income, they aren’t aware that they actually pay much more than they save, as interest. Also, you don’t get a deduction for the entire mortgage amount, it’s only the interest amount you pay toward it is deductible.
2. Selling stocks within short-term means paying more tax. So, avoid it
While this might hold true for the mall investment, it’s nothing more than a myth if the amount invested is higher. The overall gains you receive after selling stocks and paying taxes is much beneficial if you sell it at right time. If you, however, hold the stock just because you will be charged tax for short term capital gains, you will be a loser. Remember, the tock market is all about timing.
3. Buy investment to pay less tax
This myth has spawned roots mainly due to sales person of investment companies. They have been using this as their primary pitch to sell their products. It cannot be completely termed as myth, as the ost investment do save you tax. However, the same amount of money, if invested in other instruments would have gained much more than you actually saved on tax. An example that best describes the situation is investing in municipal bonds. It’s a good investment for high income people. But for people with la ower tax bracket, it’s a futile investment.
4. Tax is Easy
It is, if you know everything, which unfortunately isn’t the case with most of us. Due to the increase in dependability on lower cost tax services and tax software applications, it is widely believed that tax planning is easy and can be done in minutes. But what it really does is tax preparation and not planning. In order to gain maximum, it is advisable to seek advice from proficient Certified Public Accountant, even if you think yours is a damn easy situation.
Get out of these tax myths and face the real world. Running away from these truths will do no good but lose money, every year.