CPA-411

Myths

Myths can often tax you. Your friends and family spread rumors. Over the years, I have had clients approach me with the same common misconceptions. I thought I would share some of them with you, and then you can set them straight.

Individual

Myth No. 1:
If you can't afford to pay your taxes, you might as well not file a 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:
The odds of being audited by the IRS increase as your salary increases.

Not True. The audit rate for lower income groups-those earning between $25,000 to $50,000 a year as well as Schedule C small business owners-has increased over the past few years as a result of audit resources being directed towards non-filers, earned income credit programs and third-party licensing programs for predominantly cash businesses.

Myth No. 3:
Unemployment compensation is not taxable.

False. All unemployment compensation is subject to income tax.

Myth No. 4:
The IRS will always accept canceled checks as proof of a charitable contribution or there is a standard allowable amount you can claim as a deduction for charitable deduction.

Not True. You will only receive a deduction for charitable contributions you actually pay in a given year. For charitable gifts of $250, or more, a written acknowledgment must be obtained from the charity, stating that you received no goods or services in return for your donation.

Myth No. 5:
If you overpaid your federal income taxes or forgot to include one of your allowable deductions there is nothing you can do.

Wrong. You can file Form 1040X to correct the original return. You can request that an overpayment be refunded or applied, all or in part, to your estimated tax payments for the current year. Generally, Form 1040X must be filed within three years after the date of the original return was filed, or within two years after the date the tax was paid, whichever is later.