October already is the spookiest month of the year, but things ramp up this weekend.
Today, in case you haven't looked at a calendar, is Friday the 13th.
Tomorrow, Saturday, Oct. 14, millions in the Americas will experience, at least in part, a rare annular solar eclipse. In the United States, the event will begin in Oregon around 9:13 a.m. Pacific Daylight Time, and end in Texas around 12:03 p.m. Central Daylight Time.
The moon's passing between Earth and the Sun will leave only the edges of Sol visible, producing the effect that gives the phenomenon its ring of fire eclipse moniker in prime viewing areas.
With the final tax filing extension deadline on Monday, Oct. 16, on the heels of the solar eclipse, this Friday the 13th is a good time to disabuse ourselves of some scary tax myths that just won't go away.
1. Students don't owe taxes. There are lots of tax breaks to help parents offset the costs of rearing children, including older kids attending college. But helping families out doesn't mean the Internal Revenue Service ignores young earners.
The U.S. tax code still applies to young and/or in school earners who make certain amounts of money for their age and filing status. In these cases, the IRS expects them to file a 1040.
2. Married couples must file a joint return. Most husbands and wives do file one Form 1040. But they don't necessarily have to. Married couples have two filing options, married filing jointly or married filing separately.
Separate returns by spouses usually mean higher tax bills for the spouses, but in some situations it's the better filing status move. And if you're still legally married but separated and are caring for a dependent child, you might be able to file as a head of household.
3. An audit involves time-consuming meetings with the IRS. Sometimes, but not always. IRS data over the last few years have shown that less than 1 percent of individual returns that were audited were examined in person. Most tax audits are actually solved through the mail, known as correspondence audits.
And the IRS recently announced that it is refocusing its examination efforts to catch wealthier individual and corporate taxpayers who are trying to evade taxes.
Still, the audit fear persists. But don't obsess over the possibility that you'll face IRS questions about your return. Instead, if you do happen to get a notice from the IRS, be sure to answer its questions as soon as possible to resolve any IRS questions about your return.
4. Tax filing is voluntary. Sorry, but this is a load of hooey perpetuated by tax protesters. Folks have latched onto the use of the word "voluntary" but ignored its companion word "compliance."
Paying taxes is not voluntary, but filing our annual returns so that we pay the correct amount is voluntary. The IRS depends on our voluntary compliance here. Most of us do just that for a variety of reasons.
Some of us fear the aforementioned audits. Others believe paying taxes is part of everyone's civic duty. And a lot of us fill out 1040s every year because we're getting refunds.
But folks who don't file because they don't believe it's required will be hearing from the IRS.
5. Illegal income is tax-free. You and all the wannabe Al Capones out there wish! While the IRS doesn't care how you get your cash, it definitely wants its rightful portion of your money, even if it's ill-gotten. And Uncle Sam's tax agents in the Criminal Investigation unit are persistent.
6. Claiming a home office will automatically trigger a tax audit. This might have been true long ago, but nowadays more people are legitimately working from home. In fact, it's easier to claim a home office with the simplified deduction option. Whether you use the original deduction option or the simplified one, make sure your office is used exclusively for work.
And as with any deduction, the key is to avoiding a special IRS inquiry, or at least ending it as soon as possible, is thorough documentation.
7. If I didn't get a 1099, I don't owe any tax. Wrong, wrong, wrong. Independent contractors might not get a tax statement from a payer if they earned less than $600 for the job. But that $600 figure refers only to the amount that triggers the requirement that a paying entity send out the form.
Regardless of how little you earn, and even if you don't get a 1099 or any other documentation, it's taxable income.
Sure, it might be difficult for the IRS to track down those various $50 and $100 payments, but if it does find them, you'll owe the taxes on the unreported earnings along with penalties and interest for not including them on your 1040 in the first place.
8. A tax refund means my return is fine. You filed. You got your refund. Tax case closed, right? That's usually the case. But that check from Treasury or direct deposit of the amount doesn't necessarily mean you're in the clear. The IRS generally has up to three years to take a closer look at your filing. If it finds an issue during that time, you'll be hearing from an agent.
9. After three years, the IRS can't audit me. About that three-year statute of limitations. Yes, it runs from the date a 1040 is filed, or the due date, whichever is later. But as noted in #8, that's in most cases. Several things can affect the actual statute of limitations when it comes to an audit.
If, for example, you don't send in a return, the IRS gets to look into your taxes whenever it sees fit. And if there's an indication of tax fraud, there's no limit on when the IRS can review your filing.
Your best move here is to be ready. A thorough record keeping system will ensure your necessary tax and other financial records on hand.
10. If the IRS is OK with my return, my state taxes also are fine. This usually is true. Most of the states that do collect income taxes use your federal return as the basis for the filing. But anyone who's filled out a state tax return (ah, fond memories of our Maryland filings) knows that there are some tweaks of your federal data on the state forms.
And state tax departments are getting tougher as they continue to build back their treasuries following financial losses during the COVID-19 pandemic. So double check those forms so that you don't hear back from your state tax office.
11. Standard deduction filers get stiffed. This never was true, but it's definitely been debunked since the Tax Cuts and Jobs Act of 2017 basically doubled the standard deduction amounts. If you do have more than the standard amounts, you still can fill out a Schedule A. But even without this form, there are plenty of, actually 24, above-the-line deductions that are available to qualifying taxpayers regardless of which deduction method, itemized or standard, they choose are still around.
12. Amending a return will get you audited. Based on all the audit-related myths, the thought of facing an IRS examiner obviously is a top tax terror. But the idea that correcting or changing an old 1040 will automatically prompt an audit is wrong. Most people file an amended return (that's Form 1040-X) because they discovered they missed something on their original return that will get them a lower tax bill or bigger refund.
If, however, you find you made a mistake that will cost you a bit more, you should amend your return anyway. Getting your taxes right is what you and the IRS both want. An effort to do that won't put an IRS target on your back.
13. My tax preparer is liable for any errors. Sorry, but you are still ultimately responsible for any mistakes on your tax return. If it's a joint filing, both spouses are jointly and severally liable, which is legalese for the IRS will come after you both for any due taxes.
You should have paid better attention to the statement on your return just above the line for your signature. The one that talks about "under penalties of perjury" ...
... and says "I declare that I have examined this return." That puts the onus on you, not your preparer.
And while there are instances where paid preparers can be held culpable, the bottom line (or penultimate section of your return as far as signatures go) is that it's your tax return, your tax responsibility. You agreed to that by inking your old-fashioned John Hancock on a paper form or via an e-signature for electronic filing.
Let the sun shine in: OK, feeling a bit less fearful? Good.
But just in case you don't want to press your tax or other luck on this Friday the 13th, you might want to stay in today (and tonight) and work on your extended tax return (here are some tips to finish your 1040) or watch a movie.
If you go for the film option, with the solar eclipse approaching, may I suggest Under the Tuscan Sun (trailer below) if you're a romantic and foodie missing Stanley Tucci's show; Steven Spielberg's World War II prison camp epic Empire of the Sun starring a young (age 13) Christian Bale; or Solis if you're a sci-fi/survival adventure fan.
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