Myth #2: I made too little; there’s no point in filing a return.
If you made under a certain threshold (which varies by filing status and age) for a given year you are not legally required to file a tax return, but it may be in your best interests to do so. If you made under the threshold and had taxes withheld from your paychecks, you are likely entitled to a refund. If you aren’t required to file but meet the qualifications for the refundable Earned Income Tax Credit, filing a tax return may get you back more money than you ever paid in. You can check whether you are required to file at IRS.gov.
Myth #3: Filing for an extension will give me more time to pay.
Filing for an automatic extension gives you until October get your return finalized, but any balance owed is still due on April 15th. If you haven’t covered your entire tax liability, any outstanding balance after this date will be subject to a failure-to-pay penalty plus interest.
Myth #4: My return was accepted and I received my refund, so I’m safe from an audit.
Your refund arrives after a cursory check of your calculations. The IRS has up to three years from the filing date to decide if your return requires further scrutiny. If you don’t file a return for a given year or tax fraud occurred, there is no time limit on their ability to come knocking.
Myth #5: An audit notice should incite panic.
A correspondence audit is the most common type of IRS, and it’s often relatively simple to resolve. They send you a letter requesting clarification on some detail, you send the information or possibly a check for what you should have paid, and the case is closed. If you were honest with your tax preparer and keep good records you probably have nothing to worry about. If you used a reliable tax professional like those at Bacon & Gendreau, they’ll be there to answer questions and help you along the way if needed.
Myth #6: My tax preparer is liable for any mistakes.
By law, you are responsible for all of the information on your return. The IRS doesn’t particularly care who prepared your return; its accuracy is on you. Your tax preparer has no way of knowing about any income, investments, etc. you neglected to tell them about or any misinformation you gave them. Simple human error also does happen. Always review your return carefully before signing.
Myth #7: I don’t have to report all my tips. Nobody actually does that.
The IRS strongly disagrees. If you receive more than $20 in tips in any a given month you must report them to your employer, and all tips must be reported on your tax return. This includes any non-cash tips of value like event tickets. Just because you might get away with it, doesn’t mean you shouldn’t pay your fair share. Besides being in hot water with the IRS, lowering your gross income in this way may hurt you when you need to prove a certain income level, such as when applying for a mortgage or loan. You are also lowering any future unemployment, disability, or social security payments.
Myth #8: I’ve got a desk and a computer so I can take the home office deduction.
The IRS has very strict rules for qualifying home offices, and taking the deduction is thought increases your chances for an audit. You must be self-employed to qualify, and that part of your home must be regularly and exclusively used for conducting business.