10 Tax Facts You Should Know (part 1)

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In our work as a tax attorney, I have helped many people with tax problems. These range from not being able to afford their taxes to identities stolen and everything in between. More often than not, many of the tax problems I come across stem from not knowing some of the ins and outs of our tax system. Starting today I would like to share 10 tax-related facts that you may not know. Some of these facts could save you a pretty penny, so you should take note of every one of them. Click here to read or watch more IRS Help resources.

Tax Fact #1 – You Can Defer the Deadline but Not the Payment
April 17 is the deadline for tax submissions this year. But as always, it is not a hard and fast deadline. It can be deferred without any questions asked. Just fill up and submit IRS form 4868, which you can find online, and get yourself a six-month extension on filing your taxes till October 17. But you cannot defer your tax payment – these must still be paid by April 17.

So what you should do is estimate the amount of taxes you owe based on last year’s taxes and pay the amount. Unless you have had a major life change such as job layoff, marriage, dependent child who has become independent, then the amount of taxes you pay should not significantly change since last year. But if some major changes have taken place, you should consult a tax attorney who can help you calculate your tax liability.

So submit form 4868 and pay up now if you have not filed your taxes. You can do so even on the deadline itself.

Tax Fact #2 – Many Taxpayers Leave Money on the Table
The inherent complexity of our tax system deters most taxpayers from taking time to understand what deductions they are entitled to. But if you do not claim your deductions, you are leaving money on the table.

Some little-known tax deductions you may be entitled to include investment losses, expenses on tax preparation software and IRA fees. You can deduct up to $3,000 in investment losses provided you sold your stock last year. Tax preparation software expenses and IRA fees can be deducted if they exceed 2% of your adjusted gross income.
Many people forget to deduct their charitable contributions because they are usually one-off expenses. Just make sure you can justify your contributions with the relevant documents (which may be in cash or kind).

Tax Fact #3 – You Do Not Have to Fear Audits
One of the most fearful things is being called for an audit. Audits have risen significantly especially among the high income earners (those earning at least $200,000 a year). The number of “face-to-face audits” the IRS conducted on taxpayers reporting incomes over $200,000 jumped to 78,392 cases, an increase of 34% from last year.

One of the things that raise a flag in the eyes of the IRS is claiming disproportionately large deductions. But if you can show proof of your deductions, you do not have to fear audits. So by all means claim your rightful deductions, just substantiate them if ever you are called for an audit.

I will continue with more tax facts tomorrow. Stay tuned.

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