The TAX ALMANAC site has begun a discussion thread on “Urban Tax Legends”, or more appropriately tax myths – statements that many believe to be true but are totally false.
Here are some of the urban tax legends from the forum that I agree are untrue (my comments in parentheses):
· Receiving a 1099 increases your audit risk (However, if you do not report the income from the 1099 on your 1040, or attach some kind of explanation to the return, you will receive a bill from “Sam” for additional tax and accrued interest).
· Filing late in the filing season near April 15 decreases your audit risk (You are audited based on what is on your return and not when you filed it).
· Filing an extension and filing near Oct 15 decreases your audit risk (See above).
· Taxpayers over age 65 (or over 70) who are still working don't have to pay Social Security tax (I actually had an employee at one of my clients tell me that since they are age 70 I do not have to withhold Social Security tax from their paycheck any more – age 70 used to refer to no longer having to reduce/repay your Social Security benefits based on excess earned income).
· You can deduct the cost of your car and all its operating expenses, or mileage, as a business expense if you put advertising on the car (IRS Publication 463 clearly states that “putting display material that advertises your business on your car does not change the use of your car from personal use to business use. If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses”).
· You only have to claim the income for which you received a 1099 (All income from self-employment is taxable, whether or not you receive a Form 1099).
· You can deduct a gift of up to $12,000 given to your daughter (You can never deduct a gift to an individual on an income tax return; this applies only to the federal “Gift Tax” – you can make a gift of $12,000 per person per year without becoming subject to the gift tax).
· Police officers can deduct $5 a day as Walking Around Money (This came from a specific tax court decision several years ago that applied only to a specific tax court jurisdiction – in the case state troopers were required to eat their meals at public fast food restaurants to increase their visibility).
· Because the IRS didn't audit your returns, the deduction you have been taking all these years must be legal (It just means you weren’t caught!).
· AMT is only for high income taxpayers (It is not for true high-income individuals, but for the upper-middle class).
· You can incorporate your business in Nevada and pay no state income taxes, even though the corporation does business in your home state and other states (Most states will tax the corporation as a “foreign corporation”).
· When a client calls and says "I have a quick question", it does not mean it will be a quick answer (Oh how true – and “Oh, it’s a simple return” is never a simple return!).
· CPA's know more about taxes than EA's (The opposite is more likely true).
· Putting it on the corporate credit card automatically makes it deductible (Putting a personal expense on a corporate credit card means that you owe the corporation money or you have additional taxable compensation).
· If you go to one of those "pennies on the dollar" places you will only owe them and the government "pennies on the dollar" (Don’t believe those ads – in 99.99% of cases an Offer In Compromise will not let you pay $100 to settle a $10,000 tax debt, more like $7,500 – and you will pay a sizable fee to the “place” – how do you think they can afford to advertise on tv?).
· "What do you mean it's wrong? I used Turbo Tax. It has to be right" (The Tax Court has on at least two occasions rejected the "Turbo-Tax Defense" when a taxpayer attempted to blame tax preparation software for a negligent tax return).
Here are some of the items reported on the forum to which I take exception:
· Using the pre-printed IRS label increases your audit risk (I do believe there really may be some code built in to the federal label regarding your tax-filing history – so just to be safe do not affix the label on your federal income tax return unless you have a spotless past).
· Firefighters can deduct the cost of their lunch since they are on duty 24 hours a shift (When a fire department requires its firefighter-employees to make payments into a common meal fund as a condition of employment, such expenses are ordinary and necessary business expenses under Section 162(a) – and I have the Tax Court references to support this).
Gina, Kay, Kelly, Trish, Dan, Jim, Joe, Ryan – did I forget any tax myths?
TTFN
PS – According to my Blogger “dashboard” this is my 200th posting since moving back to blogger.com on Friday, December 1, 2006 – previously I had blogged at http://rdftaxpro.tripod.com/weblog. And my site meter indicates that I have had 13,051 visits since then – or since adding the site meter to the page a few days thereafter.
Here are some of the urban tax legends from the forum that I agree are untrue (my comments in parentheses):
· Receiving a 1099 increases your audit risk (However, if you do not report the income from the 1099 on your 1040, or attach some kind of explanation to the return, you will receive a bill from “Sam” for additional tax and accrued interest).
· Filing late in the filing season near April 15 decreases your audit risk (You are audited based on what is on your return and not when you filed it).
· Filing an extension and filing near Oct 15 decreases your audit risk (See above).
· Taxpayers over age 65 (or over 70) who are still working don't have to pay Social Security tax (I actually had an employee at one of my clients tell me that since they are age 70 I do not have to withhold Social Security tax from their paycheck any more – age 70 used to refer to no longer having to reduce/repay your Social Security benefits based on excess earned income).
· You can deduct the cost of your car and all its operating expenses, or mileage, as a business expense if you put advertising on the car (IRS Publication 463 clearly states that “putting display material that advertises your business on your car does not change the use of your car from personal use to business use. If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses”).
· You only have to claim the income for which you received a 1099 (All income from self-employment is taxable, whether or not you receive a Form 1099).
· You can deduct a gift of up to $12,000 given to your daughter (You can never deduct a gift to an individual on an income tax return; this applies only to the federal “Gift Tax” – you can make a gift of $12,000 per person per year without becoming subject to the gift tax).
· Police officers can deduct $5 a day as Walking Around Money (This came from a specific tax court decision several years ago that applied only to a specific tax court jurisdiction – in the case state troopers were required to eat their meals at public fast food restaurants to increase their visibility).
· Because the IRS didn't audit your returns, the deduction you have been taking all these years must be legal (It just means you weren’t caught!).
· AMT is only for high income taxpayers (It is not for true high-income individuals, but for the upper-middle class).
· You can incorporate your business in Nevada and pay no state income taxes, even though the corporation does business in your home state and other states (Most states will tax the corporation as a “foreign corporation”).
· When a client calls and says "I have a quick question", it does not mean it will be a quick answer (Oh how true – and “Oh, it’s a simple return” is never a simple return!).
· CPA's know more about taxes than EA's (The opposite is more likely true).
· Putting it on the corporate credit card automatically makes it deductible (Putting a personal expense on a corporate credit card means that you owe the corporation money or you have additional taxable compensation).
· If you go to one of those "pennies on the dollar" places you will only owe them and the government "pennies on the dollar" (Don’t believe those ads – in 99.99% of cases an Offer In Compromise will not let you pay $100 to settle a $10,000 tax debt, more like $7,500 – and you will pay a sizable fee to the “place” – how do you think they can afford to advertise on tv?).
· "What do you mean it's wrong? I used Turbo Tax. It has to be right" (The Tax Court has on at least two occasions rejected the "Turbo-Tax Defense" when a taxpayer attempted to blame tax preparation software for a negligent tax return).
Here are some of the items reported on the forum to which I take exception:
· Using the pre-printed IRS label increases your audit risk (I do believe there really may be some code built in to the federal label regarding your tax-filing history – so just to be safe do not affix the label on your federal income tax return unless you have a spotless past).
· Firefighters can deduct the cost of their lunch since they are on duty 24 hours a shift (When a fire department requires its firefighter-employees to make payments into a common meal fund as a condition of employment, such expenses are ordinary and necessary business expenses under Section 162(a) – and I have the Tax Court references to support this).
Gina, Kay, Kelly, Trish, Dan, Jim, Joe, Ryan – did I forget any tax myths?
TTFN
PS – According to my Blogger “dashboard” this is my 200th posting since moving back to blogger.com on Friday, December 1, 2006 – previously I had blogged at http://rdftaxpro.tripod.com/weblog. And my site meter indicates that I have had 13,051 visits since then – or since adding the site meter to the page a few days thereafter.
3 comments:
Sorry, I left comments on your previous post.
Dan Meyer of Tick Marks erroneously responded to my challenge in a comment to my Sunday posting ON THE AISLE. He wrote:
[1] Might also want to invite Russ Fox (Taxable Talk) and Eva Rosenberg (Tax Mama) to your conversation.
[2] The only specific urban myth which I didn't see in your list is the so-called "slavery" credit which has misled a number of African-American taxpayers.
Thanks for the prompt response, Dan.
(1) All are welcome to weigh in.
(2) Yes, I did forget this famous tax urban myth. I have never come across it with any of my clients. Thanks for pointing out my omission. It has been on the IRS "Dirty Dozen" list of tax scams for years. According to the IRS "Thousands of African‑Americans have been misled by people offering to file for tax credits or refunds related to reparations for slavery. There is no such provision in the tax law. Some unscrupulous promoters have encouraged clients to pay them to prepare a claim for this refund. But the claims are a waste of money. Promoters of reparations tax schemes have been convicted and imprisoned. And taxpayers could face a $500 penalty for filing such claims if they do not withdraw the claim."
TWTP
No, I can't think of anything you left out. Thank you so much for the laugh!
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