Myth No 1: If you file an extension, you're more likely to get audited.
I hear this myth far too often, so let me put this one to bed. Studies have never found any correlation between extending the deadline for filing and getting audited. Another myth I often hear is that if you file early, you're more likely to be audited. That's not true either. Moreover, less than 1 percent of tax returns were audited for incomes under $200,000 last year. according to IRS data.
Myth No. 2: You can claim pets as dependents.
No matter how much we love our pets (or how expensive they can be), you cannot claim your pet as a dependent. However, you can write off expenses related to your pet's care if those expenses are directly related to protecting your business, as in the case of a guard dog, or if you need a dog for medical reasons, like a seeing-eye dog.
What are most common things people forget to claim?
1) Child and dependent care credit - not just for kids under 12 but also if you're taking care of an elder relative and you could get some help for summer camp if pick a camp specifically so you can work while your kids are there.
2) Job expenses - if they exceed more than 2% of your income. That can include costs for professional fees, equipment, job hunting even if you don't find a job.
Myth No. 3: Claiming the home office deduction is an automatic audit.
Home offices have become increasingly prevalent and common enough that there's no need to be afraid of claiming a legitimate deduction -- simply claiming this deduction is not an automatic trigger for an IRS audit. Just make sure your claim falls within IRS rules LIKE THAT YOU USE IT EXCLUSIVELY FOR WORK AND MEET CLIENTS THERE.
Myth No. 4: An extension to file means an extension to pay.
Filing an extension will give you extra time to file your return - AN AUTOMATIC 2 MONTHS FOR FILING NOT PAYING- but any amount you owe is still due by April 15. An extension can help you avoid the failure-to-file penalty, but any outstanding balance will be charged a failure-to-pay penalty at half percent per month and garner interest. No one wants to pay Uncle Sam a penny more than necessary, so e-filing your tax return by the tax deadline will help you avoid this situation.
What if you can't pay?
You must still file. If you file and can't pay it's .5 percent penalty per month until you pay. If you don't file it's 5% per month or 10x more. So if you owe $1,000, file and don't pay you have a $5 penalty per month. If you owe $1,000 and don't file or pay, you owe $50/month.
Can you negotiate with the IRS?
The IRS can be nicer than you think. Get your return in on time and then look into an installment plan. There's an application you fill in online and small fees you pay. Or you might be able to qualify to settle your tax bill for less, there's about a $200 fee online - it's usually when the IRS thinks that there is a max they can reasonably expect to get from you. But you have to try to do something - if you don't the government can put a tax lien against your property or assets.
You can check out Nicole's latest money column in Redbook magazine on newsstands now, and her New York Times Best Selling book, "Rich Bitch" is available now.
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