For Immediate Release
Contact: Gigi Thompson Jarvis
firstname.lastname@example.org, 202.822.6232, x11
Taxes. It’s Complicated!
WASHINGTON, DC (March 9, 2012)—Some of the smartest people around have some big misunderstandings about filing their taxes. True, it’s not brain surgery – but it’s complicated! Consider that the US tax code has grown into such an enormous document since income tax was implemented that a well-aimed toss could render it a deadly weapon! Here are some of the most common misconceptions.
“I’m filing an extension this year, so I don’t need to pay anything yet.” When an extension is filed, it is just an extension on the time to file; it is not an extension on the time to pay! If a taxpayer owes $1,000 on a personal return and files an extension, he or she has until October 15 to file the return. But, if the $1,000 is still owed on April 18 (taxes are due on April 17 this year), interest and penalties start to accrue. To avoid paying a penalty, you must pay at least 90 percent of what you estimate you owe or 100 percent of your 2011 tax liability prior to April 18. If you don’t pay in full, you’ll wind up owing four percent annual interest on the liability not covered.
“I had a really big loss in the stock market this year, so I won’t owe any income taxes.” Deduction of capital losses against ordinary income is limited to $3,000. Also incorrect: “I traded some stocks and have a loss/didn’t make any money, so there’s no need to report those sales.” Another misunderstanding is: “I reinvested my dividends, I didn’t receive them, so I don’t have to pay tax on them.” Wrong. Whether you receive them or reinvest them, they are income.
“They paid me in cash and I don’t have to report that, right?” If it’s income, you must report it.
“I’m too young/too old to have to pay taxes.” Even your dependent high schooler has to file a return after earning income over $5,700. And, Uncle Sam may still be interested in your return after you’re dead. A personal representative of the decedent is required to file a final personal tax return and possibly an estate tax return and pay the taxes due.
“If I didn’t receive a document about it, it’s not taxable.” A good preparer will provide you with a checklist that reveals missing documents, but too often taxpayers who are preparing their own returns will fail to include important information simply because they missed something in the mail, or because the document was never mailed.
“Income earned in a foreign country is not taxable.” Taxpayers are required to report all earned income to IRS, no matter where it was earned.
“Income from my hobby can’t be taxable.” The operative word here is “income.” It’s taxable.
“IRS doesn’t care about my state refund.” Taxpayers who itemize their deductions are allowed to deduct all state taxes paid or withheld on their federal return, so in reality, paying taxes on last year’s refund is correcting an over-deduction from the previous year.
Finally, a lot of taxpayers hold misconceptions regarding paid preparers. The notion that all tax preparers do is fill out forms neglects the real value of a paid preparer: they keep up with myriad tax laws and regulations and have the expertise to know how to apply these rules for your benefit. All paid return preparers are now required to register with IRS and get a “Tax Preparer Identification Number” – be certain your preparer has one! Enrolled agents have long been federally-licensed and required to pass three competency tests and a background check and complete annual continuing education requirements. To find an EA in your area, go to the “Find an Enrolled Agent” directory at www.naea.org.