6 tax terrors and how to overcome them

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6 tax terrors and how to overcome them
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6 tax terrors and how to overcome them| Photograph by Arturo Latierro 'EwarArT'/Moment/GettyImages

6 tax terrors and how to overcome them

Admit it. You're afraid of your Form 1040 and most other tax forms. That's OK. A lot of us are. And our tax fears -- sometimes irrational, sometimes warranted -- cause us to do a lot of dumb things when it comes to our annual returns.

Some people put off filing; some don't file at all. Neither of those choices is a wise tax move.

But fear doesn't have to paralyze you. Here are 6 common tax terrors. Take some comfort in this: Some aren't nearly as terrifying as you might think.

Regardless, you'll find out just how you can conquer those tax terrors, get your returns done in a timely manner from now on and possibly save a few bucks once you've overcome your tax-filing fears.

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Afraid I can't do my taxes myself | Tetra Images/Getty Images

Afraid I can't do my taxes myself

This fear, unfortunately, is too often true, in large part because of the ever-expanding tax code. Its exact size has been the subject of much debate in recent years, with one think tank in Washington, D.C., calculating that it now contains more than 10 million words when you count the Internal Revenue Code itself (2.4 million words long) and accompanying regulations (7.66 million words) to implement the laws.

No one, however, disputes the difficulty in deciphering the tax code. The National Taxpayer Advocate's annual assessment of the most serious problems facing taxpayers usually includes tax code complexity on the list.

It's no wonder the average taxpayer feels overwhelmed. Robert Simon, CPA and partner with WithumSmith+Brown in the accounting and consulting firm's New York office notes, "It is easy to understand why people can get confused when you consider the sheer number of code sections involved."

The remedy: Don't be afraid to ask for help. Most of us already do. The IRS says around 80% of us rely on tax software or tax professionals to get our taxes done.

You have lots of preparer options, from a personal accountant who can fill out your return and help you plan throughout the year to franchise operations that gear up between Jan. 1 and mid-April. If your tax situation is not overly complicated, computer software might be enough to help you file with a bit more confidence. Take a look at your tax needs, then find the tax assistance that best meets them.

Afraid I'll overlook a tax break | Martin Barraud/OJOImages/Getty Images

Afraid I'll overlook a tax break

Even folks who are brave enough to tackle their taxes on their own often face this fear. Again, it's not an unreasonable one. And once again, those folks in Washington, D.C., feed this fear.

Take, for example, the various tax laws created to address specific situations. The first-time homebuyer credit, for example, was changed 3 times in less than 2 years.

Many tax definitions would make Merriam-Webster editors scream. The IRS itself abandoned attempts to come up with a uniform definition of a child in connection with assorted tax breaks. Even the seemingly simple task of determining a dependent requires a close examination of ages, income amounts and time spent living under your roof.

The remedy: Accept that tax filing is going to take some homework. Before you start your return, check out the countless publications -- including Bankrate's tax center. If you've been too afraid to start the process, check out "7 ways to get organized for the tax year." By staying on top of tax law changes and filing tips, you'll know exactly where this year's taxes might trip you up.

Afraid to make mistakes that cost money | PiotrPowietrzynski/Photographer's Choice RF/Getty Images

Afraid to make mistakes that cost money

This is a close relative of fear No. 2. But here, the fear is not of omission, but commission.

This includes things as simple as filing the wrong tax form. It happens. In trying to get through filing as quickly as possible, some folks opt for the easy way out (in this case, the 1040EZ), and end up cheating themselves. Or they choose the incorrect filing status, such as single when they're eligible to file as the more tax-advantageous head of household. Those are just a couple of the many mistakes that tax filers make every year.

The remedy: Slow down. Read the instructions. If you're using software, don't skip steps just to finish. Answer all your tax pro's questions. If he or she says to provide more information, then provide it. A little extra work and attention to detail could cut your tax bill or get you a bigger refund.

Afraid my tax adviser is inept or a crook | ByeByeTokyo/E+/Getty Images

Afraid my tax adviser is inept or a crook

You know you need help, but you're afraid that the person you turn to could be more of a hindrance. Unfortunately, sometimes this fear is well-founded. A few years ago, a Government Accountability Office investigation into commercial tax-prep chains in major metropolitan areas produced the alarming finding that all the returns completed in those offices were wrong to some degree.

The Department of Justice's Tax Division regularly shuts down tax preparation offices across the United States when it finds the operators have allegedly filed bogus returns for clients. And yes, even big-name, high-dollar help sometimes produces unexpected tax costs for clients.

The remedy: The IRS' efforts to regulate tax preparers was killed by the courts, and only 4 states -- California, Maryland, New York and Oregon -- set standards for tax professionals. The agency has instituted a voluntary preparer education and certification program, but you'll have to do your homework to ensure you don't end up paying for your tax preparer's mistakes.

Start with the hiring process. Investigate several potential preparers, and thoroughly check out each before you hand over your personal tax documents. Once you're a client, don't take every recommendation at face value. Ask questions, and make sure you understand the answers. Most of all, remember the adage, "If it sounds too good to be true, it probably is."

Afraid I'll get audited | Bart Sadowski/E+/Getty Images

Afraid I'll get audited

Everyone dreads facing a tax examiner. But audit fears tend to be much greater than audit realities. The overall risk of audit remains small. In recent years, IRS data show that its audit rate hovers at less than 1% for individuals earning less than $100,000. The agency also has admitted that it is now going after wealthier taxpayers since any filing mistakes there tend to produce a larger return on the audit effort.

The remedy: Statistics don't matter if you're one of the relatively few audited. If that happens, make sure you can show an IRS examiner why you filed as you did. "If you're really doing stupid things on your tax return, expect to get audited. Deservedly so," says Eva Rosenberg, an enrolled agent based in Southern California and the Internet's TaxMama. "But if you're afraid to use a legitimate tax break because you're afraid you're going to be audited, stop it! Stand up for your rights. There's no reason to be afraid."

Keep good records. If you can prove the tax break was valid, you'll be OK. People who work for themselves and file Schedule C do tend to get scrutinized a bit more, so your business record keeping needs to be precise.

Afraid to file because I can't pay | ImageSource/DigitalVision/Getty Images

Afraid to file because I can't pay

The only thing scarier than filing taxes is what could happen if you don't file. The IRS penalty for not filing is actually worse than if you file but don't pay your tax bill in full. It'll cost you 5% a month on any unpaid tax if you haven't sent in a Form 1040. Send in the return but no money, and you'll only be charged one-half of 1% of the tax owed for each month.

The remedy: File! And file on time. Then make arrangements to pay. That way you'll avoid taking that hardest tax penalty hit, which could reach a cumulative 25% maximum penalty.

If you can't afford to pay your full tax bill, send Uncle Sam at least a down payment. As for coming up with the rest of the tax bill, consider using a credit card; just use the card that has the lowest interest rate. The IRS also has payment plans. Though these add interest charges to your tax bill, rates right now are low. And at least you can be assured that you're meeting your filing and payment obligations.


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