Every spring, there’s a fun and delicate dance that we taxpayers do with Uncle Sam. As he tries to get you to fork over his slice of your income pie, you start to play hard to get and may even go a round or two with your accountant in the famous financial dice game: Will I or Won’t I Get a Refund?
Whether you’re a young professional just starting out, a retiree, a married couple with a new baby, or an established business owner with complex financial circumstances, tax time can be confusing, stressful, and (let’s be honest) fill you with complete and total dread.
At Team Holly CPA, we do the best we can to provide our client family with honest and practical advice at tax time. Over the years, we’ve fielded hundreds of different questions from people at tax time. But there are always some recurring misconceptions. This year was no different.
So here are our Top 10 Tax Myths just for you.
MYTH #1 – You Need an Accountant
As much as we (accountants) hate to admit it, it’s just not true. Everyone does NOT need an accountant. If you don’t own a home, don’t have kids, or don’t own your own business, you can probably do your taxes on your own. If you just have a W-2 from your employer, and there aren’t any special deductions or circumstances that will affect your taxable income, you can safely do your taxes without the advice of a professional. There are lots of great, free tools out there to help you. Go Google it, and get your taxes done in 20 minutes or less online.
MYTH #2 – If You Don’t Make a Ton of Money, You Don’t Have to File Taxes
This is only partly true. A lot of people think that because they made very little money, or took huge losses in a new business, that they do not have to file a federal tax return. While you might not be required to file, it still might be beneficial. How so? If you don’t make a ton of money, you could be leaving huge tax credits on the table by not filing a return. That’s money the government will put into your pockets for free! But let’s say you’re retired and you just receive a 1099-B for your investments. The IRS might think you’ve made money on investments when you really lost money in investments because the cost-basis of your investments isn’t reported on that form… So just go ahead and file – why risk missing out on cash back if you don’t have to? One thing we can guarantee you: if you leave cash on the table in the form of tax credits or a refund, the IRS will never get in touch with you to offer you that money back – the onus is on you to go get what’s rightfully yours.
MYTH #3 – If You File an Extension When You Owe Money, You Won’t Pay a Penalty
This is one of the most unfortunate tax myths out there. When you file an extension with the IRS, it’s only an extension of time to file. It’s NOT an extension of time to pay. So if you can’t get your taxes done on time and you think you may owe, you should try and at least send the IRS a payment by April 15th to lower or eliminate that penalty.
MYTH #4 – Your Bank Statements Are Sufficient Backup for Expenses & Deductions
Sorry, but not so much. If you are audited, the IRS will ask you for receipts and detailed notes on all of the figures you claim as deductions. A bank or credit card statement does not qualify as proof. So if you’re claiming medical expenses, unreimbursed business expenses, or deductions for your car or home, be sure to save all those receipts, make detailed notes on them, and keep them in a safe place with the rest of your tax documents. Backup documentation should be kept for 7 years.
MYTH #5 – Keeping Track of Your Tax-Related Expenses is Hard
It used to be super tedious to keep track of all your tax-deductible expenses, but it no longer has to be! There are tons of apps out there to help! If you’re a “shoebox” person – someone who used to throw all your receipts in a box somewhere until tax time and then organize them – check out the Shoeboxed app. One of our favorites, this bad boy will let you take a picture of a receipt, make notes about it, and will save it for you to create a monthly expense report later. It also has a mileage tracker which uses your Smartphone’s GPS to track your mileage when you’re on the road. Other personal finance apps, like Personal Capital and Mint, can automatically download and categorize your bank and credit card activity so that you can easily sort through it later. (Still save the receipts, though!)
MYTH #6 – Home Improvements Are Tax Deductible
Um, not so much. Unless your home improvements are related to energy-efficient technology, your run-of-the mill home maintenance does not have immediate tax implications. Home improvements may impact your tax picture when you sell the home, but not before.
MYTH #7 – A Home Sale is an Instant Capital Gain
Nope! If you sell your home (and it’s your primary residence), you do not have to pay tax on the first $250,000 of the proceeds. You don’t have to buy another home with it, you don’t have to reinvest it – it’s yours. So take that cruise or go to Disney World – Uncle Sam won’t say a thing!
MYTH #8 – Only Business Mileage is Deductible
If you’re going to itemize your deductions, you can also deduct miles driven to and from medical and dental appointments, and miles driven for charitable purposes – like to and from all those volunteer gigs you do. Speaking of charity, if you donate supplies or wear a uniform when you volunteer, those expenses are deductible as well.
MYTH #9 – All Tax Preparers Are Created Equal
Well we’d like to say they are, they’re not. If your Great Aunt Edna or your neighbor is offering to do your taxes, beware. It might seem helpful, but unregistered, uneducated tax preparers can do some serious damage to your tax return. The IRS recognizes only 3 types of tax preparers – you can read about them here. A CPA is the most strictly regulated tax preparer type, and as such is also the only one that requires 80+ hours of continuing education every two years, along with a college degree.
MYTH #10 – Your Accountant is a Magician
Okay, we know people don’t really think that but you should see how many people ask us to pull a rabbit out of our hat!
“Can you get me more money back even though I have no other expenses to claim?” No.
“Can you file my taxes tomorrow even though I just sent you my stuff today?” Probably not.
“Can you get me my refund faster?” Sure, if you take me to Hogwarts so I can borrow Hermione’s time-turner first…
Your accountant is always under extreme pressure at tax time – especially this year with an abbreviated tax season due to the 2013 government shutdown. If you don’t give your accountant several weeks of lead time, they probably won’t be able to get your tax return done before the deadline. And no matter how much we’d like to, we can’t get the IRS to give you a refund any faster. At our firm, refunds came in about 7-10 business days after e-filing. So be patient, and don’t depend on refund money that you don’t yet have.
If you have any questions or want to talk to a CPA for free, give us a call. We want to provide you with the best possible financial advice out there so that you can be an informed taxpayer. Contact us today or email email@example.com to set up a free consultation with our team.