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TAX FEARS

Don't be shy. Taxes scare you. Your fears are nothing to be ashamed of. Most of us are. As a result of tax fears, we tend do some pretty unintelligent things when filing our annual returns. Below are some of the more common fears people have to deal with when filing and what you can do to defeat them.

 

Fear that I can not prepare my taxes on my own
This is a realistic fear; especially since new provisions and pages are added by federal lawmakers every year. Getting your own tax return ready can be mind boggling and very confusing.

The solution: Don't hesitate in seeking help. Utilizing the services of a professional, personal accountant will make your life much easier. If your tax situation is not too complicated, you may want to consider checking out some tax preparation computer software like Turbo Tax.

Afraid that a tax break will be overlooked
When filing taxes on your own, it is very likely that you will miss some crucial tax breaks. For example, three popular tax breaks that expired, only to be brought back to life at the end of 2006. This caused a great deal of headaches not only for filers, but for the IRS as well. The tax agency had already printed 2006 tax forms without the state sales tax, educators' expenses, or tuition and fees deductions. It's hard enough to claim tax breaks when they're right in front of you; now with these three, you have to go searching for how to claim them.

The solution: You may need to do some research when filing your taxes. A good idea would be to check out some financial publications for alerts as to where you may face problems when filing your return. As mentioned, seeking the aid of a professional or using tax software is also an option.

Fear that a mistake will be made that will end up costing money
A mistake can be as simple as filing the wrong form. Many consumers look to rush their process by filing 1040EZ. This may be quicker, but you will only end up cheating yourself.

It is also common for people to select the wrong filing status. For example, filing single, when in fact you are eligible to receive the tax advantage of a head of household.

The solution: Take your time. Read the instructions. If you use an accountant, answer all of their questions and provide with them all of the paperwork that they request. If you are utilizing software, do not skip any steps. The extra work you put in may be tedious, but can result in a larger refund.

Worried that your accountant is not competent or is a thief
The Government Accountability Office recently released a report indicating that a limited analysis of commercial tax prep chains in major metropolitan areas concluded that every single one of the returns completed in those offices were incorrect to some degree.

For example the IRS alleges that last year some Jackson Hewitt franchises filed phony returns for clients, cheating the federal government out of $90 million. Over 125 branch offices were shut down in Atlanta, Chicago, Detroit and Raleigh, N.C.

 

The taxpayers whose questionable returns were filed by Jackson Hewitt ended up having to pay additional taxes and penalties.

The solution: No one is perfect. Mistakes happen. The most important concern is that you do not pay for mistakes made by your accountant.

The best way to locate a good accountant is by asking for a referral from a friend or family member. If this is not possible, meet with several accounts to determine who you feel most comfortable with before you decide to entrust with your personal tax documents.

As a client, you should never be afraid to ask questions. Also be certain that the answers you receive are 100% clear to you.

Concerned that I will get audited
If you are working with an accountant that does some questionable things, your chances for getting audited increase. However, only about 1% of consumers get audited by the IRS every year. There are a few things that may catch an auditors eye, but as mentioned, the chances of getting audited are slim.

The solution: Be aware that if you are audited, you will have to show an IRS examiner why you filed as you did. This entails good record keeping, particularly if you're self-employed. Individuals that have there own businesses, and file Schedule C with their returns, tend to get analyzed a bit more. Therefore your business record keeping needs to be very accurate.

Afraid that if I e-file my personal info could be lost or compromised
More than 50% of Americans files their taxes electronically. Yes, identity theft should always be a concern. In fact, last year, during the last few weeks of tax season, there were email phishing scams floating around that were claiming to be the IRS. Even thought the IRS issued warnings to all consumers that took advantage of e-file, hackers were still able to obtain financial information from those unsuspecting.

 

The solution: The IRS will never ask for personal information via emails. Also, never perform any sort of financial activity online unless you are on a secure site and your computer has a firewall and virus protection installed.

I don't want to file my taxes because I do not have the money to pay
Did you know that the penalties associated with not filing are more than if you do not pay your bill in full.

The typical penalty for filing late is 4.5% of the taxes owed for each month. However, if you file on time but you can not afford the tax bill, you will incur a late payment penalty of 1/2 of 1% of the taxes you owe every month.

The solution: Make sure you file, and on time! If you can not afford to pay the entire bill at once, pay what you can and consider it a down payment. Submitting a request for an extension with a small payment is better than not filing at all. Learn what options you have for paying taxes.


 

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