SmartMoney.com recently posted an article about “hidden” tax truths. Here’s a condensed and updated version:
1. “Like it or not, you may need help with your taxes.”
As recently as 2000, less than half of all taxpayers were using a preparer. Today 80% use software or a tax pro “because they’re scared of making a mistake,” says Nina Olson, the National Taxpayer Advocate. The cost of a tax pro can range from a few hundred dollars for a simple return to thousands for other matters. You’ll usually get what you pay for.
2. “You don’t have to be rich to get audited.”
The audit rate has more than doubled since 2000 to surpass 1% of all returns. One way to set the IRS off is to claim deductions much higher than are typical for your income level. Unfortunately, the IRS keeps this information under wraps. But it’s clear that charitable deductions are being scrutinized more closely. So keep receipts for all donations.
3. “Fear is often our best weapon.”
The threat of an audit causes some to overpay their taxes by not taking deductions they’re entitled to. A study by the Government Accountability Office (GAO) found that 2.2 million people a year overpay, by an average of $438.
4. “The AMT is our ATM.”
By 2010, the alternative minimum tax (AMT) is projected to hit 87% of joint filers with income between $75,000 and $100,000. Despite recent “band-aids,” you’re still in the danger zone if you live in a high-tax state or you’re married with two or more kids. The IRS offers AMT assistance at “Online Services.”
5. “Just because we billed you doesn’t mean you owe us money.”
Being tapped for a correspondence audit sounds scary, but in most cases, you won’t actually owe any more money. The IRS is likely billing you because of a discrepancy on a certain deduction or reported income; then it’s up to you to prove otherwise. If you plan to challenge the result, contact your local IRS taxpayer advocate (go to www.irs.gov/advocate). For greater expertise, use a tax lawyer or enrolled agent. Find one at www.naea.org.
6. “You can get the private collection agency off your back.”
In recent years, the IRS enlisted the services of private collection agencies to help collect past due taxes. But now it is abandoning the idea. On March 5, 2009, the IRS announced that it would not be renewing those contracts. All taxpayer accounts currently assigned to the private collection agencies are being returned to the IRS for review and processing.
7. “Want to go green? We’ll help pay.”
Starting in 2009, a number of energy-saving steps will garner tax breaks for green consumers. For example, you can reap a 30% tax credit for making solar energy improvements. If you aren’t looking to go quite that green, there is a $1,500 credit for installing energy-efficient windows, insulation or a central air system.
8. “April 15 isn’t necessarily a hard deadline.”
By filling out IRS Form 4868, which you can find online, you can buy yourself a no-questions-asked six-month extension on filing your taxes. And you can file the form requesting your extension as late as April 15 without any penalty. However, if you do owe any taxes, you still must pay those by April 15.
9. “We may be a government agency, but that doesn’t mean your data’s safe.”
The documents you send to the IRS contain information prized by identity thieves. A recent report by the Treasury Inspector General for Tax Administration (TIGTA), an independent IRS oversight organization, casts some doubt on the agency’s ability to protect your information.
10. “We may still have your refund.”
Typically, it takes three to six weeks to get your money back from Uncle Sam, depending on whether you e-filed or sent your paper return through snail mail. Every year a fraction of refunds—belonging to more than 100,000 taxpayers with an average due of $988—never reach their destination. If you haven’t received your refund, check out the IRS’ “Where’s My Refund?” tool.
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