Do not get fooled these popular tax myths, as they may cost you thousands in unclaimed credits or lead to a nasty IRS audit.
1. Anyone seeking an extension is likely to get audited.
Some people believe that the IRS is more likely to audit returns that request an extension. However, it is the information on your return, not the date it was filed, that determines if you will be audited.
2. Self-employed individuals only need to report income on a 1099.
Some self-employed taxpayers mistakenly think that they only need to report income that can be verified from a 1099 form. This is 100% incorrect. The IRS requires that all taxpayers report any income they receive. Do not forget that the IRS has access to bank accounts and other financial data and will go after money they are entitled to.
3. Anyone claiming a home office will get audited.
Yes, the IRS often carefully examines home business deductions, but that does not mean you will automatically be audited. With so many taxpayers running businesses out of their homes today, it would be impossible for the IRS to audit every one. However, if your home business deductions are excessive then you will be much more likely to get audited.
4. Income taxes violate due process of law.
This is a popular reason tax protestors frequently cite to support their resistance to federal taxes. The 5th amendment protects citizens from being “deprived of life, liberty or property, without due process of law.” However, the IRS gives all citizens ample due process of law. Taxpayers even have the right to go before the United States Tax Court to dispute a claim by the IRS.
5. Filing a tax return is illegal self-incrimination.
Another argument made by tax protestors is that reporting wages and personal information to the IRS is essentially self-incrimination. Unfortunately federal tax law does not allow taxpayers to avoid reporting information to the IRS based on this argument, and there have been numerous court cases that reflect this judgement.
6. By putting a logo on your car you can write off the entire expense.
Some business owners think that by just putting a branded sticker on the side of their car means they can claim it as a business expense. IRS Publication 463 specifically states that putting materials on a vehicle that advertises a business does not change its use from business to personal.
7. You can refuse to pay taxes on religious or moral grounds.
Some people claim that based on the first amendment you can refuse to pay taxes if they conflict with your religious or moral beliefs. If this were true then no one would ever pay taxes. The first amendment does give Americans the right to practice the religion of their choice, but it does not give the right to avoid income taxes.
8. You must itemize to take deductions or credits.
This myth is completely untrue and can unnecessarily cost taxpayers thousands. There are dozens of "above the line" deductions that taxpayers can take even if they do not itemize. Additionally, you do not need to itemize at all to take any credits.
9. The IRS will prepare your return if you forget to file.
This myth stems from a provision of the IRS Tax Code Section 6020, which states that the IRS has the right to determine a taxpayers tax liability when they do not file an accurate return. However, this does not remove a taxpayers legal obligation to file a tax return with the federal government.
10. Filing a tax return is voluntary.
Although people like to think that paying taxes is voluntary, they are incorrect. The U.S. tax system is based on a concept known as voluntary compliance, which means you voluntarily determine the amount of tax you should pay. However, you are legally required to pay income taxes and the IRS has the right to enforce compliance. In addition, in order to receive an economic stimulus check you must file a return. For more information on the economic stimulus package check out Economic Stimulus Package: Clearing Up Any Confusion