The Top 5 Tax Myths: Are You Sure You Know the Tax Code?

About taxes, the early 20th century cowboy comedian and social commentator Will Rogers once said, “The income tax has made liars out of more Americans than golf.”

Albert Einstein may have been a brilliant physicist, but that didn’t stop him from taking his shot at the tax system, calling it, “too difficult for a mathematician. It takes a philosopher.”

We can all have our fun, but that doesn’t change the fact that taxes are a part of our lives.

Doing personal taxes

A tax is a compulsory, government-imposed levy upon the citizenry to generate funds to pay public expenditures.

As familiar as we all are with taxes—income, property, goods, etc.—it’s surprising how many myths about taxes are circulated. We’ve singled out five of the most commonly spread (and readily believed) of those myths:

First Myth: It Is Voluntary To File Taxes

It’s not surprising that this is the first on our list because “voluntary compliance” is a phrase that the IRS likes to use. In the first place, compliance to a law or legislation is never voluntary. And the IRS’ capacity to collect monies owed makes it the most powerful and effective debt-collection agency in the country.

So where’s the confusion?

It’s in the way we pay our taxes. Our tax levy doesn’t come down from the government. It is our responsibility to calculate our income, do the paperwork (or hire an accountant) and report to the government how much we owe. And then we write a check.

So we “volunteer” the information about what we owe. But it is our responsibility to determine the exact amount we owe.

But make no mistake; paying your income tax is not voluntary.

Second Myth: Illegal Activities Are Not Taxable

It’s a well-known story that the legendary prohibition-era crime boss Alfonse “Al” Capone ultimately went to prison—not for his criminal activities—but for tax evasion. Capone had earned hundreds of millions of dollars from his illegal activities, and the IRS wanted the taxes owed on that money.

Capone reportedly once boasted, “They can’t collect legal taxes from illegal money.” But the Feds had the last laugh when they sentenced him to 10 years in prison.

And in a 1961 Supreme Court case James v. United States, an embezzler was required to list his ill-gotten gains as part of his income for tax purposes. The Court held that not only was James required to pay tax on the embezzled funds, when he repaid what he had stolen he still had to pay the tax as though he had kept the money.

So if people tell you that you don’t have to report your illegal income, refer them to section 22(a) of the Internal Revenue Code of 1931 and section 61(a) of the Internal Revenue Code of 1954.

Doing tax filing

Third Myth: Taxes Don’t Have To Be Paid By Students

While there is a modicum of truth in this myth, we need to lay out the whole story. The fact is, being a student (even a full-time student) does not automatically exempt someone from paying taxes.

And even students who are technically dependents listed on their parents’ taxes must file a tax return if their income is GREATER than the standard deduction.

In other words, it is not your status as either a student or dependent that exempts you from paying taxes…only the amount of earned and unearned income you make at a certain age. Even if you don’t make enough to be required to pay taxes, you do need to file if you want a refund on withholdings.

One exception open to students is FICA. This Social Security and Medicare tax is not applicable when students are employed by the school or university where they are enrolled.

Fourth Myth: Money Made Through The Internet Is Tax-free

With the rise of e-commerce, don’t we all wish the income we earn online was tax-free. Sorry to burst that bubble, but income earned online is taxed just like any other earned income.

So why the myth? The source of this confusion probably stems from Internet sales tax. For many years, buyers essentially have avoided paying sales tax on their online purchases. This is changing. States have long held that online businesses had an unfair advantage over traditional brick and mortar business. And since 2018, states have been moving quickly to impose sales tax on online purchases.

So don’t let online income and online sales tax confuse you. Whether you earn your living online or earn a little Miscellaneous Income, you must report your online earnings the same way you report offline earnings.

Doing taxes

Fifth Myth: I Usually Don’t Have Time To Do My Own Taxes

Sorry, folks, time and taxes wait for no one. You can dust off your best excuse, but it won’t work with the Internal Revenue Service.

In fact, between e-filing, short forms and the myriad tax services across the country, time should never be an excuse.

Even not having enough money to pay your taxes is an excuse. You will…eventually…have to pay. In fact, here’s a tip. If you can’t afford to pay on time, at least file your taxes. You will be charged interest until you pay off, but you may avoid additional penalties.

In conclusion, if you have questions about your tax obligations, seek reputable advice. Talk with a CPA, tax professional or contact the IRS directly. And ignore the myths. You can also be sure to know more about taxes when you visit It is important to pay taxes, but it’s even more important to know the law.