Taxes are due in less than two weeks, which means that if you haven’t yet taken the time to tackle your return, you’d better get moving.
Though you won’t be penalized for being late with your taxes if the IRS owes you money, if the opposite holds true, you’ll face strict penalties for missing the July 15 deadline.
Many filers worry about having their tax returns scrutinized, but a lot of that fear boils down to misinformation.
In fact, here are a few tax audit myths it pays to get to the bottom of.
1. Tax audits are pretty common
False. Less than 1% of tax returns are audited each year, so the chances of that happening to you are pretty low to begin with — even less so if you report all of your income like you’re supposed to.
2. I won’t get audited as long as I hire a professional
False again. Though working with a professional may reduce your chances of an audit, it won’t guarantee that your tax return won’t get flagged. Your tax preparer can only rely on the information you provide when getting your return in order. If you neglect to report income — say, from a job you did on the side — your accountant can’t be held responsible for that. On the other hand, an accountant is more likely to ask questions like “did you earn any side income last year?” that may jog your memory and prevent that mistake.
3. It’s only rich people who have to worry about tax audits
Reporting an income of $1 million or more increases your audit risk, but so does reporting no income at all. In fact, people who report no income are roughly four times as likely to get audited as those who report an income between $25,000 and $500,000.
4. Claiming a home office deduction is likely to get me audited
In the past, a lot of people claimed illegitimate deductions for home offices because they had the flexibility to do so. But ever since the Tax Cuts and Jobs Act was passed in late 2017, the home office deduction has been off the table for anyone who’s not self-employed. And if you are self-employed and you calculate it correctly, there’s a good chance it will be a non-event.
5. Tax audits are scary
The majority of audits that the IRS conducts happen by mail. Specifically, the agency will reach out and request additional information, and you’ll be required to supply it. The IRS does not have the manpower to send an agent to the door of each filer whose return needs further scrutiny, so if you’re an average earner claiming an average refund, it’s extremely unlikely that you’ll have to engage with one in person.
It’s natural to want to avoid a tax audit, and if you play by the rules, there’s a good chance that will happen. But remember, audits really aren’t a common thing, and when they do happen, they’re generally resolved quickly and painlessly. As such, stressing over an audit this year just isn’t worth it — especially at a time when Americans have so many other things to worry about.
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Source: The Motley Fool