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13 basic tax lessons
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Keep
in mind, however, that it's still an extension to file your return, not an extension
to pay any taxes you owe.
If you don't have the money to pay
your tax bill in full, LeValley-Cocovinis says it's still a good idea to get your paperwork
in on time. "It eliminates the failure-to-file penalty and cuts the failure-to-pay
penalty in half, so at least that reduces the extra in penalties you'll owe,"
she says.
It also lowers the amount of unpaid taxes that is
subject to interest charges.
"They know you owe, and
they will find you," says LeValley-Cocovinis. "Not doing anything is always worse."
12. Audit
pain can be reduced
One of the best ways to avoid an unwanted call
from the IRS is to file your return on time. Other ways to keep auditors at bay,
or at least get rid of them quickly if they do show up, is to keep good records.
LeValley-Cocovinis
says the IRS tends to look more closely at things that require substantiation.
If you're self-employed or use your car or cell phone for business, the IRS will
want proof.
And know the rules. In the case of mobile phones,
for example, LeValley-Cocovinis says that for the device to qualify as a business deduction,
you must use it more than 50 percent of the time for business purposes. If not,
it's a personal, nondeductible expense.
"The tax devil
is in the details, so keep the detailed records," she says. "If you
don't like writing those things down, get a minirecorder.
"These
are the type of deductions they will pursue, not necessarily thinking that they're
false, but because they have the best chance to be knocked out because they can't
be substantiated."
And while high-income filers are a
target because the IRS expects to get a bigger return on investigations in the
top tax range, less wealthy taxpayers also face scrutiny.
In
fact, a tax break designed especially for lower-income filers, the Earned Income
Tax Credit, gets closely examined each year. The EITC is complicated and requires
a lot of authentication. If you file for this credit, be sure to have all the
required Social Security numbers and proof that you're eligible in case the IRS
questions your claim.
13.
Simple can be costly
Filling out tax forms is tedious and often frustrating,
so many people look to file the easiest possible return they can.
This
isn't necessarily a bad idea, as long as you make sure that a simpler return fits
your tax situation.
The 1040EZ is the shortest and easiest
to complete. The 1040A is a bit more complex, but offers a few more tax-saving
opportunities. And the long 1040 is the most detailed and potentially difficult,
but it provides the most chances to cut your tax bill.
By taking
the EZ-filing route, you might save time but you won't be able to write off, for
example, moving expenses or claim any education credits. By forgoing those breaks
simply to get through tax paperwork more quickly, you probably will end up paying
more taxes than you should.
And that's definitely a tax lesson
that none of us wants to sit through.
| -- Updated: Feb. 13, 2009 |
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