With no intent to rain on your holiday parade, remember that the end of the year is also the start of the new tax season. By the time the Christmas decorations are put away and we’re all running the treadmill trying to lose that extra weight, employers will be preparing to send out W-2s, and investment firms will be preparing statements for their clients.
Tax time can be stressful whether you use a tax service or not. But it doesn’t have to be. Business and personal tax services worth their weight in gold take the pressure off by handling everything for clients in a professional manner. Gurian CPA Firm, a well-known service provider in Dallas, suggests business owners and individuals alike find a good accountant and get things in order.
Along those lines, here are 5 tax myths to avoid as you prepare for the coming tax season:
1. The IRS Only Audits the Wealthy
This first myth is fairly common among middle-class taxpayers and small business owners. They mistakenly believe that state and federal taxing authorities only go after the uber-rich because that’s where the money is. Nothing could be further from the truth.
The IRS will audit just about any taxpayer they believe could be guilty of fraud. And while it’s true that individual taxpayers making in excess of $100,000 annually tend to be good targets, so do people making less.
2. The IRS Doesn’t Rely on Phone Calls
One of the more troubling myths in the digital age is that IRS agents initiate contact via e-mail and telephone calls. Don’t fall for it. The IRS always initiates contact by way of written correspondence. They do so because such correspondence provides a record that may be important in the future.
If you ever receive a phone call or e-mail claiming to be from the IRS, it is most likely a scam. Contact the local authorities and report it.
3. Tax Deductions Make for Equal Tax Reductions
Both personal and business taxes services deal with this myth all the time. Clients mistakenly believe that writing something off on their taxes automatically decreases the amount of tax they owe by the same amount. It doesn’t. Write-offs only reduce the amount of taxable income claimed. And while that does reduce a person’s tax bill, the amount of actual tax savings is always lower than the deduction itself.
4. A Filing Extension Allows More Time to Pay
If you were to file an extension on April 15 requesting more time to file your taxes, you would be granted that extension automatically in most cases. But a filing extension is not an extension to pay. The total amount of tax due is still payable on April 15. If you fail to pay that amount, you will incur penalties and late fees.
5. Sole Proprietors Don’t Pay Estimated Taxes
Finally, sole proprietors should not fall for the myth that says they don’t have to pay estimated taxes because of the structure of their businesses. Once again, it is not true.
A sole proprietor whose total tax bill at the end of the year will be $1,000 or more is required to pay estimated taxes quarterly. Every year thereafter, the sole provider can make estimated tax payments based on the previous year’s taxes and not incur any penalties if not enough was paid to cover the entire tax bill.
Enjoy your Christmas and New Year’s holidays, then get to work on your taxes. The more you can do to prepare now, the more ready you will be when January 1 arrives.