With the April 15 deadline to file your income tax drawing near, I would like to talk about some common tax myths that people believe. Knowing these beliefs to be wrong would undoubtedly help you more accurately file your taxes, which may in turn save you money or qualify you for a higher tax refund.
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If you file for an extension, you will receive an audit
You may think that asking for more time to file your taxes would make the IRS suspicious of you and thus result in an audit. This is not true. The IRS does not reveal how they determine who to audit so that they do not tip of the tax dodgers. But there is no reason to think that just by filing for an extension to submit your tax returns you will get audited.
In fact, submitting your taxes later but accurately would reduce the chances of getting audited because there would be no ambiguity and mismatch between your filing and the IRS records. To receive an extension, just submit a Form 4868 by the April 15 deadline.
If you file for an extension, you can pay later
Sorry, this is not true either. No matter whether you request an extension or not, you have to pay up what you owe by the April 15 deadline. If you request an extension at the same time, you still need to pay an estimated amount of what your tax liability would be.
If you choose e-filing, you are more likely to be audited
As I mentioned above, the IRS does not reveal its criteria for who gets chosen to be audited. In fact, IRS spokeswoman Michelle Eldridge has confirmed that the way the IRS determines who is audited has nothing to do with how your tax returns are filed. People file their tax returns in various ways for their own reasons; some choose to do so electronically, some choose to use snail mail. The means of filing does not have any bearing on who gets audited. Again, e-filing may reduce your chances of getting audited because it is usually more accurate.
If you run your own business, you can deduct all your expenses from your taxable income
You can only deduct expenses related to your business. You are not entitled to deduct personal expenses that are not business-related or that have been reimbursed to you by another party. A good example is your car. If the car is used for both business and private use, you can only deduct the percentage of time it is used for your business.
I will continue with more tax myths in our next article.