Working in tax return preparation in Houston can be a confusing process, especially during a busy filing season like this one. It comes with some special considerations that are likely to lead to an increase in misinformation on taxes. With the rise of social media, blogs by amateurs, etc, these tax myths can multiply. Another reason for the increase is the fact that refunds from some specific filers are having their tax returns held by law until the middle of February. This and other realities made us think of the many myths surrounding tax preparation that we will share below.
1. The IRS Delays All Tax Refunds
This tax return preparation myth is perpetuated by the thought that the IRS secretly pockets your refund as long as it can. This is thought to be in order to collect interest, have the funds available for longer, etc. However, the Protecting Americans from Tax Hikes Act forbids the IRS from issuing refunds that are associated with two refundable tax credits until February 15. These are the Earned Income Tax Credit and the Additional Child Tax Credit. They are two of the most claimed items in tax return preparation in Houston to which this law has mandated to put your tax refund on hold.
2. An Amended Tax Return Can Always Be Filed Later
The words of this tax myth are true but the intent behind them is misleading. Those who make a mistake or mistakes on their returns can do amended tax return preparation. However, they are not a simple “mea culpa” to the IRS. Amended tax returns can come with penalties, fees, and yes, you must pay if you owe extra to the IRS, including any fines for being late. In fact, if the IRS believes you knowingly filed a false return with estimated numbers or knowingly did not use accurate information, they can choose to prosecute you. This is why it is vital to get it right the first time.
3. You Don’t Need to Report Cash Income on Your Tax Return
Sure, if you find a $20 bill on the streets it can be tempting not to report it. However, you are required to report any income should you make over the minimum amount for your tax year. This includes any cash tips, gifts, gambling wins, or other income that may not necessarily come in a form W-2, Form 1099, or other official tax form.
4. I Can Write Off My Home Office
You may have a laptop or other piece of equipment from work that you keep at home to catch up on tasks in between regular working hours. However, that doesn’t mean you can necessarily take advantage of the home office tax deduction. Just because you have a computer and desk in your home that you use for various reasons does not mean you qualify for the deduction. The IRS has very specific guidelines for the home office exemption. To qualify for it, a taxpayer must prove that:
- You must be self-employed and file as such.
- You need to regularly and exclusively use that space for your business.
- You must figure out the percentage of your home devoted to business use.
- You must not rent part of your home for business purposes in many cases.
- There are special rules for those who use their home as a daycare facility.
5. I Can Get as Big a Refund Self Filing as I Can Through Professional Tax Return Preparation
We hear this one all the time, and in some cases, it is true. These cases usually involve students, part time employees, and other who do not earn much or take deductions. But for those with a business, family, both, or more, the cost of hiring a tax return preparation pro can be offset by the deductions and credits they will find. Other factors to consider are the time it takes to put together a complicated tax return. One must also factor the likelihood they will make a mistake on their taxes, something that can cost greatly in money and time.
Tax Return Preparation in Houston
If you are wondering if you need help preparing your tax return in Houston or have questions on how, feel free contact us for help.