Top tax myths you have heard

[ILLMAS]

I was invited to be part of a small business workshop, they are allowing me to speak on anything related to small business, so I have chosen to talk about tax myths based on questions people usually ask because their hair dresser gave them tax advice.... You know the story already. Here are a few of my top questions I get asked:

Is it true that I don't pay taxes for the first two years because it's a new business...

Is it true I can pay myself with a 1099 (corporate)....

I pay so much money to the state already (sales tax) why do I have still have to pay federal and state taxes at the end of the year....

I never paid taxes with the prior accountant....

Is it true I don't need to report all my income....

[Jack from Ohio]

Sounds like all my new clients at the first interview I have with them....

[Gail in Virginia]

My favorite - How old do you have to be to quit paying taxes?

[Lion EA]

I don't have to report income under $600, right? And the variations, such as $600 per client or $600 per check or....

[Guest Taxed]

I don't have to declare my winnings from the casino because they did not give me a W2G and I lost more than I ever won in my life?

[jainen]

Expired provisions:

I support my girlfriend's kids so I'm head of household.(eight years ago)

or

They didn't send a form, but the car I donated has a blue book value of $7500 (seven years ago)

or, my favorite

I had lots of overtime and a big bonus, so I'm going to do income averaging this time. (twenty-seven years ago)

[ILLMAS]

I was told I don't need to report rental income because my property is in foreclosure

These two are real question I was asked:

This question is coming from person that works the register: Is it true I can deduct sales tax on my tax return, I have a lot of receipts I collected.

This coming from a person that also works the register at a convenience store: Is it true I can deduct scratch off tickets (gambling losses) I always keep them.

In these two cases, both were advice to keep receipts from customers who don't request a receipt or who come in to check if they won something.

Oy vey I tell you

[JohnH]

Just make my "contributions" figure about the same as last year.

[Guest Taxed]

I am less likely to be picked up for audit if I file by paper as close to April 15th.

I am more likely to be audited if I file an extension.

[mcb39]

But, there IS NO tax on Social Security Income.

[ILLMAS]

Only us get a kick out of this

[Randall]

Just this season, my tax shouldn't be very much because we bought a house in NC (2nd home). And just today (no kidding), follow-up to that, I thought the down payment was deductible. We put 25k down on it.

[SaraEA]

But unemployment isn't taxable, right?

But disability isn't taxable, right?

I put a new roof on my home and want to deduct it.

I bought an energy-efficient washer and want to deduct it.

I have to buy nice clothes for work, so I want a deduction.

[ILLMAS]

I was told that I can deduct my association fees for my personal home.

[Lion EA]

I didn't give you my 1099 for my IRA because they already withheld taxes from it (10%) so I don't have to report it. So why am I getting an IRS letter about that money?

[Patrick Michael]

One my favorites..."are you sure I can't deduct that because my barber (or brother-in-law, friend, etc) said I could". Well then have your barber prepare your return and I will cut your hair! You won't be happy with either one.

[MsTabbyKats]

One my favorites..."are you sure I can't deduct that because my barber (or brother-in-law, friend, etc) said I could". Well then have your barber prepare your return and I will cut your hair! You won't be happy with either one.

To be fair to the clients, they come to us for advice about things they don't know, and the only "stupid question" is the question not asked.

However, when they tell me "their friend/barber said........." that's where I draw the line.

For example...one woman...doing her taxes for years. In 2011 she forgot to give me the 1099-R for an IRA distribution. Anyway, she also had 2 Schedule Cs that year for unrelated businesses. The IRS caught the missing 1099-R...and asked her for the tax due.

My client told me.."I have a friend who does tax returns. She said that the 2 Schedule Cs were the reason for the audit. She said that putting more than one is a red flag."

[Jack from Ohio]

The second time any client questions my advice on a matter of ethics or following tax regs, I fire them.

[Catherine]

Just make my "contributions" figure about the same as last year.

Along with "just claim whatever is the maximum with no receipts -- that's $500, right?"

[MAMalody]

One my favorites..."are you sure I can't deduct that because my barber (or brother-in-law, friend, etc) said I could". Well then have your barber prepare your return and I will cut your hair! You won't be happy with either one.

FWIIW, I did have a friend who was a fellow tax preparer who did a couple of hundred returns a year who was a barber. He got the greatest kick out of his clients telling their friends his preparer was his barber.

[Lion EA]

I want to take the standard deduction for donations.

[MsTabbyKats]

You know....I'm not finding any problem with the majority of your clients questions.

This is rhetorical, but, why do you think your clients come to you? If they knew "the rules" they'd do their own returns.

It's part of my job, and your job, to explain what you're allowed to do and what you're not allowed to do....not judge or critique for mis-information and/or being uninformed.

I'm sure all of you have asked professionals questions that seemed stupid to them....but important to you.

[Jack from Ohio]

You know....I'm not finding any problem with the majority of your clients questions.

This is rhetorical, but, why do you think your clients come to you? If they knew "the rules" they'd do their own returns.

It's part of my job, and your job, to explain what you're allowed to do and what you're not allowed to do....not judge or critique for mis-information and/or being uninformed.

I'm sure all of you have asked professionals questions that seemed stupid to them....but important to you.

When they come from 5 year+ clients, I have the right to laugh that they thought other people knew tax law better than me.

Like I posted before... The second time that a client challenges me on an issue of ethics or following the regs, I fire them. I have not spent all the years and expense to become a professional to take lightly people insulting and impugning my integrity. (I am sure jainen will jump in here...)

[Guest Taxed]

Mstabbykats does have a point. While we may feel some of these are stupid questions, the client does not. If they are paying us to prepare their return, they deserve our professionalism to advise them what the law is.

Unlike Jack from Ohio, I will not take offense and fire them, if a client challenges me on a tax point. If I am right it gives me the opportunity to show them that I know my stuff, and if I am wrong that is a learning moment for me.

[JohnH]

Much of the time, the client asks the same question because we only have this conversation with them once a year. They forgot what was said last year and so they revert to what they thought was right. And the fact is, much tax law doesn't make any common sense anyhow. So why wouldn't a reasonable person question some of the nonsense we have to tell them?

I'd tell them to go somewhere else if they continually question my abilities, because I don't want a client who doesn't trust my advice. But in many cases if they take exception to the tax law, then that just tells me the client has some common sense.