The tax code is long and complex, so it's not surprising that wrong assumptions about preparing and filing taxes abound. Correcting those misconceptions could save you money. Here are a few of the most commonly misconstrued facts, and the real story.
Not so. Couples who recently lost tax breaks when they bid their dependent children goodbye may now benefit from filing separately. So might a married couple whose income is much higher or lower than last year. In some cases, the savings may be in state, not federal, taxes. So ask about comparing the options of filing separately and jointly.
No, your parents can live anywhere. What matters is that you and your siblings pay for more than 50 percent of their living expenses, Schnell says. Adult children can share equally or unequally in that support, but only one child can claim the dependent-care exemption each year. Often the children give the exemption to the sibling who deals most with day-to-day issues, even if she or he doesn’t provide the most financial support. (That child must provide at least 10 percent of total support.) For more guidelines, consult IRS Publication 501, "Exemptions, Standard Deduction and Filing Information." [PDF]
Mistake. Even if you can’t send one cent to the Treasury, file your return by April 15 to avoid the penalty for failure to file, which is greater than the failure-to-pay penalty. Last year the IRS beefed up its outreach and taxpayer assistance, including arrangements for installment agreements and short-term extensions. The agency may waive penalties in some cases, but not interest charges on unpaid taxes. If you’re concerned that you can’t pay at all, call the IRS at 800-829-1040, or check out IRS Tax Topics 202, Tax Payment Options, for more information.
Not necessarily. Certified public accountants, with their extensive training, may be considered the most costly tax professionals. But a national survey of members by the National Society of Accountants, which includes CPAs and tax experts known as enrolled agents, found that tax-prep fees may have less to do with the preparer’s professional designation than with the size of the firm.
Wrong. To be eligible for a deduction, any donation of $250 or more requires a donor acknowledgement letter that specifies the amount of cash given and describes any property that was donated. The letter should also state whether the donor received any goods or services from the organization in exchange for the gift. If the letter doesn’t mention the date of the donation, a bank record or receipt will suffice. See IRS Publication 526, "Charitable Contributions," [PDF] for more.
— Tobie Stanger
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