Clearing up some Tax Misconceptions

CLEARING UP SOME TAX MISCONCEPTIONS

As the end of the year draws near, some really on the ball folks like to get their paperwork in order as the W2’s and 1099’s start to arrive. Below you will find some common myth’s about tax laws that can you in filling out your forms or deciding to make some last minute expenses or deductions to decrease your taxable income.


MYTH: Using the automatic 4-month extension of filing your tax return by April 15 exposes you to a greater risk of being audited.
Wrong. There's no correlation between using the automatic extension and getting audited.
MYTH: Using the preprinted label on your return increases your chances of being audited.
Wrong. The preprinted label is used to speed up return processing. There's no correlation between using the preprinted label and being audited.
MYTH: You can't claim your parents as dependents unless they live with you.
Wrong. Parents need not live with you their children to be claimed as dependents. If other requirements regarding amount of support and amount of parent’s income are satisfied you can claim your parents as dependents even though they do not live with you.
MYTH: Money received as a gift or inheritance is taxable.
Wrong. Not as a general rule. Money or property received as a gift or inheritance is exempt from income tax if the gift is under $13,000. Payment of the gift or estate tax is the responsibility of the donor or the decedent's estate. However, if the gift or estate tax isn't paid the IRS can collect the tax from the donee or heir.
MYTH: Distributions from tax-free funds are always tax-free.
Wrong. In addition to income, tax-free funds sometimes make capital gains distributions. The capital gains distributions are subject to income taxes even though they are distributed by tax-free funds.
MYTH: Canceled checks are always accepted as proof of charitable contributions.
Wrong. A written acknowledgment from the charity is required for all charitable contributions of $250 or more. A canceled check is not considered sufficient substantiation for contributions of $250 or more. Also, new in 2007, charitable donations such as clothing to the goodwill now needs to be itemized if it is over $500.

Please note, I am not a tax advisor or a tax professional. For more information, please check with a professional.

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