As I’m typing this blog, my “fine” wife Bev is putting the final touches on all the material we need for our CPA to file our 2008 taxes.
I’m going to resist the temptation to tell you what I think about taxes. However, I will tell you that I once did an extensive survey and only found two groups of people that don’t like to pay taxes.
Men and Women…..
Does tax season give you the jitters? It does for most folks so they procrastinate about doing the inevitable. Additionally, they often let fear of the unknown or what someone else said create unnecessary panic. Let’s clear the air a bit…and deal with some of the most common tax fears.
1. Fear of doing it yourself
Okay, this fear may have some foundation. It seems that in every session of Congress somebody is tinkering with the tax code. They call it Tax Reform. I call it the Lawyer’s Relief Act as politicians tend to make some things that should be simple way too complicated.
The tax law publisher CCH Inc. notes that the 1913 tax code took up 400 pages in its "Standard Federal Tax Reporter." By 2007, CCH filled more than 67,000 pages of that document with tax law intricacies.
The sheer magnitude of this can be mind-boggling especially for those who have trouble balancing their checkbooks.
Now, here’s the GOOD NEWS. There is tax preparation software available for your computer that is easy to install and simple to use and at relatively inexpensive prices.
Look and consider your tax needs and attempt one of these new tools. If you still feel too overwhelmed, consider a nationwide tax preparer service. They may be willing to give you a few answers without preparing your whole form and you can even find them in Walmart.
2. Fear of missing a good tax break
Go online and search…you can find a lot of answers through GOOGLE.
When I typed in tax breaks . . . the third article down was a great piece from MSN Money . . . check out this info:
3. Fear your mistakes could cost you money
If you choose to opt for the quick and easy way of filing by using the 1040EZ, you may be cheating yourself. You need to choose the right tax forms to get the best benefit. Also be sure to file the right filing status. For instance, don’t choose single if you are eligible to file as the more tax-advantageous ‘head of household.’ Wrong forms and improper filing status are just a couple of the many mistakes that filers make ever year.
Don’t be in such a hurry you miss these two obvious issues. It is better to do it correctly than quickly. Read the instructions. If you're using software, don't skip steps just to finish. Answer all your tax professional's questions. If he or she says to provide more information, then provide it.
A little extra work and attention to detail could cut your tax bill or get you a bigger refund. It is easier to do it right than to have to go back over it or worse, have to file an extension or re-file because of a mistake.
4. Fear of your tax preparer
Make sure your tax preparer is straight up. ALWAYS report ALL your income. You can claim your deductions but failure to report income could give you an unexpected trip to a most undesirable location.
Taxpayers who participate in questionable shelters could end up owing additional taxes and penalties. Everybody makes mistakes, even tax professionals. The key is to make sure you don't end up paying for your tax preparer's mistakes.
You want someone who will sign your return, make a copy of your return and stand behind the decisions made. They should be accredited with a reputable organization that requires accountability and registered with your state.
Ask for references for potential preparers and feel confident before you hand over your personal tax documents. If you use the same tax preparer each year, they will keep your information on file and use it in years ahead to make sure you are getting all your breaks.
Ask questions and make sure you understand the answers. Most of all, remember the adage "If it sounds too good to be true, it probably is.
5. Fear of the Audit
The red flag that generally prompts a tax audit is excessive medical or charitable deductions. But overall, the risk of audit is small -- about 1 percent of individual returns were audited in 2006.
Claim legitimate tax breaks and don’t claim ones that aren’t – it is that simple. Don’t be too creative, it may come back to haunt you.
Make sure you can prove your claims to an IRS agent. Keep good records, especially if you're self-employed. People who work for themselves and file Schedule C with their returns tend to get scrutinized a bit more, so your business record keeping needs to be accurate.
Keep all your back up together by year.
6. Fear of E filing and someone stealing your personal information
This year more than half of tax payers will send in returns electronically. Identity theft is a major issue but the IRS keeps careful track of scams by email and those who falsely claim to be from the tax agency.
Never ignore Internet safety precautions.
Any tax data transference requires two parties. Make sure your computer is secure. Make sure your computer has no viruses. Install a firewall and virus protection either as software or a hardware barrier, and then update it regularly. Save and back up your files regularly.
The server at the IRS is monitored constantly so don’t try using computer problems as an excuse to file late. It won’t work. There are few excuses the IRS accepts for a late return.
7. Fear of filing because you don’t have the funds
If you don’t have the money, still mail the form on time. Total non filing and nonpayment penalties could reach a cumulative 25 percent maximum penalty. Ouch! File your forms on time and then make payment options and you will avoid taking that hardest tax penalty hit.
Taxes are not an option. It is a part of life so you need to plan ahead. Contract work or self employment earnings must be paid quarterly as Estimated Tax. This should be treated like a regular bill. It is easier to put away money than trying to come up with the whole amount on April 15th. Also, if you don’t send in Quarterly payments on time, you can get charged interest.
Whatever you do, file. The IRS penalty for not filing is actually worse than if you file but don't pay your tax bill in full. If you owe tax and don't file on time, the late-filing penalty is usually 4.5 percent of the tax owed for each month or part of a month that your return is late. However, if you file on time but just can't pay your tax bill then, you'll generally face a late-payment penalty of only one-half of 1 percent of the tax owed for each month, or part of a month, that the tax remains unpaid.
You have payment options. Use a credit card to meet your tax debt, then pay it off as quickly as possible. Go with the card that has the lowest interest rate or a zero-percent rate if possible. The IRS also has payment plans although these add interest charges to your tax bill. But at least you can be assured that you're meeting your filing and payment obligations.
A Final Word
Most people procrastinate at tax season because they hate to face a shoebox full of papers. If tax season gives you the chills, try being more organized, more knowledgeable and face the tax facts.
Taking just a few steps now will make your next return relatively painless. Look at what caused you the most concern or fear this tax season. Then lay out a strategy to overcome them, starting now.
Set up a filing system. It’s really just as easy to drop that paper in a file as it is throw it in a shoebox. That way every receipt or important document will be right where you need it and you won’t dread the process so much.
While doing your taxes is never considered entertainment, it doesn't have to be as difficult or fearful if all your information is at hand.BLOG COMMENTS POWERED BY DISQUS