5 Common Tax Myths Debunked: What Every NJ Resident Should Know

Understanding Tax Myths

As tax season approaches, many New Jersey residents find themselves questioning what they know about state and federal taxes. Misinformation can lead to costly mistakes or missed opportunities. This post aims to debunk some common tax myths that can trip up even the most diligent taxpayer.

Myth 1: Filing for an Extension Means More Time to Pay

One prevalent myth is that filing for a tax extension gives you more time to pay your taxes. In reality, an extension only provides extra time to file your return, not to pay any taxes owed. New Jersey residents should ensure they pay any estimated taxes by the original due date to avoid penalties and interest.

What You Can Do

If you can't pay the full amount, consider paying as much as you can by the deadline and exploring payment plan options with the IRS or New Jersey Division of Taxation.

Myth 2: State Refunds are Always Tax-Free

Some people believe that state tax refunds are not taxable at the federal level. However, if you itemized deductions in the previous year and received a state refund, it might be taxable. This is because you may have deducted the state taxes paid the previous year.

Understanding Deductions

If you took the standard deduction, your state refund is usually not taxable. Always review your previous year's tax situation to determine how your refund should be treated.

Myth 3: Social Security Benefits are Never Taxed

Many New Jersey residents mistakenly believe that Social Security benefits are never subject to taxes. While this is true for some, others may find that up to 85% of their benefits could be taxable depending on their income level.

Check Your Combined Income

To determine if your benefits are taxable, calculate your combined income, which includes your adjusted gross income, non-taxable interest, and half of your Social Security benefits.

Myth 4: You Can't Deduct Medical Expenses

Some taxpayers assume they can’t deduct medical expenses due to recent tax changes. However, you can still deduct qualifying medical expenses that exceed 7.5% of your adjusted gross income.

What Qualifies?

Eligible expenses include payments for medical care, prescription medications, and certain insurance premiums. Keep thorough records to ensure you can substantiate your claims.

Myth 5: All Tax Preparers are the Same

It's a mistake to think that all tax preparers offer the same services and accuracy. Credentials, experience, and specialties can vary significantly. Choosing the right preparer can make a difference in your tax outcome.

Choosing a Preparer

Look for preparers with appropriate licenses, such as CPAs or enrolled agents, and verify their standing with relevant professional organizations. Always ask for references or reviews from previous clients.

By dispelling these myths, New Jersey residents can approach tax season with confidence and avoid common pitfalls. Stay informed and consult with professionals as needed to ensure a smooth and accurate tax filing experience.