- Myth #1: Confessions to your tax advisor are confidential
A tax advisor is not your lawyer, so don't expect your tax advisor to protect you if you've committed a crime. For that kind of advice, call a lawyer. A law passed last summer does permit tax advisors to keep certain types of federal tax advice and communication they provide to their clients confidential, but this is limited to advice about federal taxes. It does not apply to tax returns, criminal matters, state and local taxes, business advice, civil litigation and tax shelters.
- Myth #2: Extensions trigger audits
Many people are under the impression that if they take the four-month extension, they're more likely to be audited. The reality is that there is no connection between an extension and the chances of getting audited. If you file for an extension, the only trouble you can get into is if you do not pay estimated taxes.
- Myth #3: Peel-off labels trigger audits
Some people believe that if you use peel-off name and address labels, you'll be audited. Some people even think that the peel-off label that the IRS provides has secret coding that triggers an audit. The IRS says labels have absolutley nothing to do with audits. In fact, the IRS says using peel-off lables might speed up the processing of your return.
- Myth #4: Once you have your refund, you won't get audited
Just because the IRS sent in your refund does not mean you're off the hook. The refund only means the IRS agrees with your calculations - not that it agrees your deductions are legitimate. Depending on which date is later, the IRS can choose to audit you any time within three years after a return is filed or after the due date of the return.
- Myth #5: Spending money to get deductions is a good move
No. Money should never be spent just to get a tax deduction. These types of expenditures are tax-motivated mistakes. You are letting future tax payments dictate your financial decisions. For example, if you're a young couple starting out and a realtor tells you to buy a more expensive house than you can really afford so you can get a bigger tax deduction, don't do it. If you can't afford the property, it's not worth the deduction.
- Myth #6: Losses from the sale of a home are deductible
Since investment losses are generally deductible, it would seem to make sense that losses incurred in selling your home should be deductible also - but that is not the case. The IRS says you cannot deduct any losses from the sale of a primary home.
- Myth #7: There are a lot more home office deductions this year
Hom office deduction rules have changed, allowing more people to to qualify for home-office deductions. But the changes took effect on Jan. 1, 1999 - meaning the deductions will be allowed on 1999 returns, not 1998.
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