Myth No. 1: If you can't afford to pay your taxes, you might as well not file a tax return. Wrong. Failing to file a tax return can subject you to costly penalties. It's best to pay as much of your tax bill as possible and file your return, attaching Form 9465, requesting an installment payment plan.
Myth No. 2: If you've made a mistake on your federal income tax return, there is nothing you can do about it. Wrong. You can file Form 104OX to correct the Form 1040, 1040A, or Form 1040EZ you have already filed and request that an overpayment be refunded to you, or you can pay any tax you owe.
Myth No. 3: The odds of being audited by the Internal Revenue Service will only increase as your salary increases. Not true. The audit rate for lower income groups -- those earning between $25,000 to $50,000 a year -- has increased over the past few years as a result of substantial audit resources being directed toward the non-filer and earned-income tax credit programs.
Myth No. 4: It's not worth the expense of taking the IRS to tax court over a disagreement about the amount of taxes you owe. Wrong. It really depends on the amount of taxes you owe. Also, tax law changes in 1996 actually enhanced taxpayer rights in this area. The new law provides that the burden of proof rests with the IRS in certain actions and for increased attorney's fees. What's more, if the court agrees with you and finds the IRS position to be largely unjustified, you may be able to recover litigation costs, and, in certain instances, costs incurred for administrative proceedings, such as fees for expert witnesses and special studies and analyses.
Myth No. 5: Unemployment compensation is not taxable. False. All unemployment compensation is subject to income tax. You can choose to have income tax withheld from your unemployment tax payments by completing Form W-4V, Voluntary Withholding Request, or by making estimated tax payments.
Myth No. 6: Any income you receive from the rental of your vacation home is subject to federal taxes. Wrong. You can rent your vacation home for up to 14 days a year without paying income tax on that income.
Myth No. 7: Buying U.S. Savings Bonds in your children's names is a tax-smart way to save for their college education. Not necessarily. Redeeming U.S. Series EE Savings Bonds to pay for the costs of certain higher education expenses are free from federal income tax only if they are issued in one or both parents' name. Certain income restrictions also apply. But purchase the bonds in your child's name and the proceeds will be subject to tax, even if they are used for qualified educational expenses.
Myth No. 8: Child-support payments are tax deductible. Wrong. Child support payments are neither deductible by the payee nor considered income for the recipient. However, alimony payments are tax-deductible. The recipient must also declare alimony as income.
Myth No. 9: Withdrawing funds from qualified retirement plans before age 59-1/2 will subject you to tax penalties. Not always. If funds are withdrawn in a series of periodic payments made over your life expectancy or the joint life expectancies of you and your beneficiary, you can tap into your retirement funds early and avoid the 10-percent penalty. Penalty-free withdrawals (before age 59-1/2) are also permitted for death, disability, certain medical expenses and separation from service after age 55.
Myth No. 1O: Retirement funds are protected from creditors under federal law. Wrong. Get yourself into debt and you can risk your future financial security. If a creditor gets a judgment against you, your IRA's funds can be seized depending on state law. They also have no special protection in the case of bankruptcy.
Myth No. 11: In order to claim business-related tax deductions, you must have a receipt for every expenditure. Not always. The IRS threshold at which receipts are required for business expenses is now $75. While you won't need the receipt, you will however need records showing the cost and business purposes of the expense.
Myth No. 12: Once you have received a tax refund from the IRS, you can rest assured that you won't be audited. No! Receiving a tax refund is not a sign that the IRS believes your return is correct. It only indicates that the IRS agrees with your math. The IRS can still audit your return any time within three years after it is filed or after the due date of the return, whichever is later.
| Home | The Library Catalog |
LinkExchange Member Free Home Pages at GeoCities