Are You Afraid? Things Taxpayers Shouldn't Be Scared Of
Taxes - the IRS – Revenuers – just the mere utterance of these words strikes fear in the hearts of many. In fact, anything having to do with taxes causes some people to turn, well, just downright irrational! Believe me, in 30-plus years of practice, I've seen it all (famous last words).
And while it's true that issues related to your taxes shouldn't be ignored, there is no need to let fear enter the picture…that is, of course, unless you are not filing at all and should be, or are underreporting your income.
So with fear elimination in mind, here are the top things that I find taxpayers to be irrationally fearful about:
1) Taking the deductions you are entitled to take. Many are often afraid that claiming the tax deductions to which they are entitled will for some reason raise a red flag at the IRS.
The fact is, unless you are talking deductions that are blatantly excessive when compared to your income, this is simply not true. But I'll go a step further; even if they do seem "excessive", if you can prove it with the proper documentation, do you really care?
Why waste expenditures you are legally entitled to deduct? If a deduction is legit and you have the documentation for it, take the darn thing! Yes, you may be asked to provide the proof, but so what? That's easy if you have it, so take the deduction.
2) Correspondence from the IRS.Speaking of being asked to prove something, taxpayers seem deathly afraid of any envelope with an IRS return address. Too often, folks get something in the mail from the IRS, and out of fear, they just ignore it (true story). Then another one comes, then another…
Here's the deal – DON"T IGNORE THEM! If this happens to you, by all means, open the thing. You may just find that it's only a notice that informs you of something you really need to know (like why your refund is delayed or possibly a change in the amount). Or it could be just asking for some clarifying information so they can finish processing your return.
There are lots of relatively inane reasons you may get something in the mail from the IRS (or State for that matter) and the worst thing you can do is not deal with it. These things are time sensitive, and waiting to you have a pile of them to finally deal with it could likely create a big mess where there was not one before.
3) Making a mistake. Now come on; really? Sadly it's true that this is a big fear. Yet, we all know instinctively that nobody is perfect. We all make mistakes. And believe it or not, the IRS is usually pretty understanding about simple honest mistakes, giving us a variety of ways to work those out with out too much pain and suffering. They may even waive penalties in certain circumstances – hey, it never hurts to ask!
4) Examinations (the dreaded IRS audit).Audits are an unfortunate "fact of life" in our "voluntary" system of taxation. But let's be clear; they just don't happen that often! And being picked just at random is certainly not that common.
The last time I looked, the chance of being audited was something like 1 in 119 (more like 1 in 330 if you don't have a business, rental, or Earned Income Credit as part of your return), far less than even 1%. And the fact of the matter is that chance is going down even further with budget cuts, etc.
Even better news is that over 75% of "audits" are handled by mail (I refer you back to #2 above), thus, no revenuers in trench cuts. Believe it or not, early in my career, in a not-to-be-named rural Arkansas town, I was accused of being such a revenuer, having worn my suit and trench coat into the local BBQ joint. But that's another story. In short, you got this!
5) Not being able to pay your tax bill. So you don't have all the money you need to pay your taxes in full, therefore, you just shouldn't file your return or reply to IRS letters, right?
WRONG! Please don't fall into that fear trap. It will likely cost you dearly in the end. Can you say higher penalties, liens, and garnishments?
Yes, it's best if you can pay in full on time, but if you can't, don't panic. It's possible to work out a payment plan with Uncle Sam, and in some cases, if you qualify (meaning no chance you could ever pay it all), the IRS might accept less than full payment through what is know as an Offer in Compromise.
These are some of the most common fears I've seen in my 30-plus years of practice. Yes, we should respect the role of the IRS and its reach, but let's not allow fear of them to change how we deal with our tax situations.
