Americans’ common misunderstandings about taxes unveiled

Nearly one in five Gen Zers (17%) believe that you can write anything off as a business expense when filing your taxes, according to new research.

A survey of 4,000 Americans who plan to file taxes this year, split evenly by generation and gender, revealed that though they may be one of life’s unavoidables, Americans know little about taxes.

According to the results, Gen Z also believes that students don’t need to file taxes (20%) and that if you’re paid in cash, you aren’t required to pay taxes (13%).

Baby boomers, on the other hand, were even more likely to believe that you don’t need to file taxes and you can’t get a refund if you make under the IRS income requirements (27%).

A quarter of millennials and Gen X even believe that immigrants don’t pay taxes.

In reality, a business expense can only be categorized as something necessary and directly related to your business. People earning under the IRS threshold and students are not required to file but should file if they had federal taxes taken out or are eligible for certain refundable credits since they may have a refund coming.

Immigrants are also required to pay taxes on any U. S. income made throughout the year.

One in 10 even believe that the younger generations have never filed their own taxes.

Nearly a quarter (23%) of Gen Z and 28% of millennials have filed their own taxes directly to the IRS without anyone’s help.

But still, that leaves many of each generation who admit they haven’t actually filed their own taxes. Instead, millennials opt for an online tax service (54%) or a professional (37%), whereas 32% of Gen Z look to their parents for help.

Even half of Gen X and 44% of baby boomers use an online or tax software system to file.

Conducted by Talker Research on behalf of TurboTax, the survey moved beyond tax misconceptions and put respondents’ tax knowledge to the test.

Less than half of Americans polled (47%) were able to properly match the term “earned income tax credit (EITC)” with its definition. Only 37% of Gen Z hit the mark, compared to 56% of baby boomers.

Further, 53% of all respondents were correct in identifying the “cost basis” is the original amount paid for an asset and 52% knew that a “standard deduction” is an amount that the IRS allows you to reduce based on certain factors.

Most Americans are familiar with the terms “dependents” (67%), “filing status” (61%), “tax deductions” (59%) and “child tax credit (57%). But that knowledge dwindles when it comes to things such as “below” or “above-the-line deductions” (both 8%).

Generationally, baby boomers are twice as likely to be familiar with the term “estimated tax payments” than Gen Z (50% vs 24%).

Regardless of how familiar they are with the terms, more than three-quarters (77%) of Americans agree that when it comes to filing taxes, they just want their money as soon as possible.

This may be why 57% of respondents typically file by the end of February and only 13% wait until the month of April.

Interestingly, Americans are equally likely to use a smartphone (20%) as they are a desktop computer (20%). Despite the “big screen for big purchases” stereotype, more millennials prefer smartphones than desktops (28% vs 18%).

Only 6% of baby boomers opt for a smartphone and are most likely to just hand over all items to a professional to handle (22%).

"Filing taxes can feel overwhelming—so much so that 20% of people would rather face Black Friday crowds or go to jury duty. There’s no need to be overwhelmed, as there are options offering a done-for-you filing experience, providing unparalleled ease, and fast access to money, whether you want to do your taxes yourself or have a tax expert do your taxes for you," said Lisa Greene-Lewis, CPA and spokesperson for TurboTax.

The survey also asked respondents what causes they’d like their tax dollars to be spent and found that 78% would happily hypothetically allocate those funds.

According to respondents, the most money (29%) should go towards Social Security, followed by health programs such as Medicare or Medicaid (28%), safety net programs such as unemployment and housing assistance programs (23%) with defense and security coming in last (20%).

Gen Z was the only generation to indicate that the most money should go towards healthcare programs and Gen X would allocate only 19% to defense programs, fewer than any other generation.

Americans also believe that more tax dollars should be dedicated to education and schools (57%), support for veterans (50%) and retirees (45%), as well as transportation and infrastructure (38%).

Currently, respondents estimate that about 23% of their income goes to taxes. But if they were able to allocate exactly where their dollars went, Americans would be willing to pay an average of 28% in taxes.

In a more realistic sense, a little more than a third (34%) believe that they’ll get more money in tax refunds in 2025 than they did in 2024.

They’re also planning to use their return for practical things such as putting it towards bills (46%), into their savings (43%) or even to shop for necessities, such as food, utilities or repair expenses (33%).

In fact, if it were possible to get their tax refund just one week earlier, about one-third would be less stressed overall (36%), able to pay off debt (31%) and could comfortably afford necessities (28%).

“With so many Americans relying on their tax refunds for necessities such as food and medications, rather than discretionary spending on vacations (13%) or self-care (10%), expedited access to these funds is crucial,” said Karen Nolan, spokesperson for TurboTax. “Our goal is to provide done-for-you tax filing and refund access with speed and simplicity, so filers can focus on what matters most to them."

WHAT TAX TERMS ARE AMERICANS LEAST FAMILIAR WITH?

● “Sole proprietor” - 26%

● “Capital loss” - 25%

● “Cost basis” - 13%

● “Cryptocurrency tax rate” - 8%

● “Below-the-line deductions” - 8%

● “Above-the-line deductions” - 8%

Survey methodology:

Talker Research surveyed 4,000 Americans who plan to file taxes this year split evenly by generation (1,000 Gen Z, 1,000 millennials, 1,000 Gen X and 1,000 baby boomers) and gender (2,000 men and 2,000 women); the survey was commissioned by TurboTax and administered and conducted online by Talker Research between Nov. 14 and Nov. 22, 2024.