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.