Busting 4 Myths About Income Taxes

Busting 4 Myths About Income Taxes

NEW YORK (MainStreet) — If there's one subject people love to complain about, it's taxes. No one enjoys looking down at a pay stub to see that huge chunk of income deducted. Yet in a recent survey by GOBankingRates, a whopping 79.1% of respondents admitted they aren't sure how their income tax dollars are used.

And who can blame them? At an ungodly 3.7 million words, it's no wonder few Americans have familiarized themselves with the contents of the U.S. Internal Revenue Code. It's boring, it's complicated, and most troubling, it's always changing.

One thing that probably won't change anytime soon, however, is the confusion Americans feel over taxes, especially with myths and misinformation that continue to circulate. So before you believe the next "fact" about filing, take a look at four common myths about taxes -- busted.

Myth #1: 47% of Americans pay no taxes.

It was the statistic that came back to bite 2012 presidential candidate Mitt Romney hard: 47% of Americans don't pay federal taxes.

The truth is while the Tax Policy Center estimated 46.4% of households pay no federal income tax, it also noted that close to two-thirds of those households did pay federal payroll taxes for Social Security and Medicare. Further, two-thirds of the untaxed households were elderly, close to the rest earned less than $20,000 per year. Not to mention, it's nearly impossible to avoid  federal taxes on common expenses like gas, alcohol and tobacco products.

Myth #2: Your tax bracket is the percent you pay in taxes.

Your tax bracket definitely affects how much of your income is taxed, but not in the way you might think.

Marcus Dickerson, accredited asset management specialist for FMW Financial Advisors, LLC, said many people don't understand the progressive nature of the U.S. tax system, believing that once a certain tax bracket is reached, all income is taxed at that percentage.

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