Did you know that the U.S. tax code is over 70,000 pages long?
In other words: Mere mortals like us don’t have the time—or patience—to read through it all. Unfortunately, that can lead to a whole lot of misinformation.
With tax planning season now well under way, Wall St. Cheat Sheet spelled out four of these common tax myths and misconceptions—and the real truth behind each of them.
1. I Can Make My Return Audit-Proof
Sure, only about 1% of all taxpayers actually end up being audited. But there’s also no way to guarantee you won’t end up being among them. The IRS selects Americans from every income bracket to audit, and even if you submit a flawless return, there’s still a chance you could be singled out for further screening.
Of course, it still stands to reason that the more blatant the mistakes that appear on your return, the more likely it is you’ll end up being audited. Make sure you’re avoiding these top ten tax mistakes now—and you could save yourself a major headache later on.
2. A Tax Audit Means a Big Scary Man at My Door
Just hearing the word “audit” drives deep fear into most of us. You might imagine that your small error will result in men in black rummaging through your paperwork.
You can relax about this one. In fiscal year 2012, less than a quarter of the 1% of individual returns that were audited were examined in person—most are actually conducted by mail. So while you’ll still want to avoid an examination of any kind, you might sleep easier knowing that it’s unlikely to happen on your own turf. (The exceptions are business and estate audits, which usually do happen “in the field.”)
3. I’ll Be Tax-Free Once I Retire
Retirement can mean many things—spoiling the grandkids, kicking back on the beach, or finally having time to focus on all those hobbies you’ve been neglecting. What it most likely doesn’t mean: Living tax-free.
The fact is, you’ll (hopefully!) still have an income in retirement—and the IRS’ job is to, well, collect taxes on income. But while you won’t be able to avoid Uncle Sam altogether, you can make strategic moves to reduce your tax liability in retirement as much as possible. That might mean socking away part of your retirement savings into a Roth IRA, if you can—or taking advantage of these other eight ways to lower your tax bill after you’ve quit the workforce.
4. Businesses Pay the Most Taxes, Not Me
Many folks believe that wealthy corporations bear the brunt of Uncle Sam’s bill—but that’s actually far from the truth. In fact, the Treasury Department forecasts that it will collect about $1.4 trillion in individual income taxes this fiscal year, versus just $333.4 billion from corporate income taxes. Overall, our income taxes make up close to half—47%—of total government receipts.
For more information on tax myths and mistakes, check out some wisdom a CPA shared with us about how to get your return right.