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4 Ubiquitous Tax Myths -- Debunked

IRS Income Tax Audit
Alamy
By Anna Williams

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 percent 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 percent 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 percent -- of total government receipts.


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tomseim

Liberals like to make a big deal about "payroll" taxes paid by the poor. It turns out that this is probably the best investment they will make in their lifetimes. SSA has calculated their median rate of return at 6.59% on all taxes paid. Compare this to 3.1% for high income earners.

Liberals want to eliminate the income cap on social security taxes. This would amount to a 12.4% tax increase for the wealthy and eliminate all pretense of social security as an "investment".

February 15 2014 at 1:17 PM Report abuse rate up rate down Reply
Phyllis

I'm retired and it is hard for peoples who are on a fix income to had to pay taxes

February 14 2014 at 5:10 AM Report abuse rate up rate down Reply
Hi RON

It should be a requirement that EVERYONE pays taxes --- even if it is only ten dollars.... but everyone should have some skin in the game.... NOW, with this stupid system we have, there are many who do NOT pay a penny and actually get a REBATE !!! These liberal entitlement idiots need to wake up.... and force all to have some minimal tax liability..

February 13 2014 at 9:01 PM Report abuse rate up rate down Reply
BIGBILL

Yes theydo;I just order some'sorry I don't have the #.

February 13 2014 at 4:27 PM Report abuse +1 rate up rate down Reply
1 reply to BIGBILL's comment
hummakymj

did you call irs or what?

February 13 2014 at 4:35 PM Report abuse rate up rate down Reply
hummakymj

Where can you get tax forms, since the irs doesn't send them out anymore

February 13 2014 at 4:10 PM Report abuse +3 rate up rate down Reply
5 replies to hummakymj's comment
susiehill3

AMERICANS HAVE THE HIGHEST WEALTH INEQUALITY IN THE WORLD. EXAMPLE: 10% TAX RATE ON 25,000 LEAVES 22,500 TO SURVIVE ON. 10% TAX RATE ON 1,000,000 EQUALS 250,000, WHICH LEAVES 750,000 TO LIVE ON. THE PROGRESSIVE TAX STRUCTURE WORKS BEST SO THAT IT BASES OFF SOMEONES ABILITY TO PAY..A FLAT TAX WOULD BE VERY UNFAIR FOR MAJORITY OF AMERICANS.

February 13 2014 at 3:50 PM Report abuse +1 rate up rate down Reply
3 replies to susiehill3's comment
alfrankenfool

Here's one question, do the Liberal Democrats actually pay any taxes let alone their fair share as they always preach.

February 13 2014 at 3:33 PM Report abuse -7 rate up rate down Reply
2 replies to alfrankenfool's comment
clark8642

I opposed the massive tax cuts of early 2013 because there were inadequate offsetting spending cuts (the American Taxpayer Relief Act of 2012, passed in 2013, cut taxes by $4 Trillion over ten years per the CBO.). Nevertheless, you would probably call me a liberal. And I paid a higher effective tax rate than Mitt Romney for the two years he partially reported. And probably for the ten years before that. The carried interest loophole, entirely legal, saved him a bundle.

February 13 2014 at 7:07 PM Report abuse +5 rate up rate down Reply
rademps

I didn't know that there is a way for Liberal Democrats to avoid paying any tax! If I declare on my tax return that I am a Liberal Democrat, does that mean I can put $0 in the tax owed part? Can I be prosecuted for perjury if I say that on the return when i am really an independent voter? Suppose I am a Conservative and claim the "Liberal Democrat" tax exempt status. Is that a way around the hidden exemption known only to Liberal Democrats. Or is that perjury too? Or only gross negligence? Where in the IRS regulations can i find out about these terrific perks allowed for Liberal Democrats. (How come Mitch McConnell hasn't complained about it?)

February 13 2014 at 7:12 PM Report abuse +1 rate up rate down Reply
2 replies to rademps's comment
esepanik

You must be in Tea Party lala land and you must be on magic mushrooms from Romney's magic flying underwear.

February 13 2014 at 7:30 PM Report abuse -1 rate up rate down
Hi RON

There are ways where the liberal democrats can avoid paying taxes... usually it is the lower income brackets with dependents... and they can get a lot of free bees at the same time that are NOT taxable....... They work the system, and many in Congress are allowing them to do so....in an effort to get a vote or two.

February 13 2014 at 9:05 PM Report abuse -1 rate up rate down
jnsmill44

I wonder if the American people have any Idea of how much tax is really levied on us?
Whe we buy a loaf of bread, it has been taxed no less than 5 times. 1) it is taxed when the farmer buys the seed. 2) it is taxed when the farmer sells the wheat to the grainery. 3) it is taxed when the flour mill sells it to the bakery. 4) it is taxed again after the bakery bakes it into bread. 5) it is taxed again on it's profit when it is sold to the grocery store, 6) and again when the customer buys it to eat...... So there is really no end to the taxes that we are expected to pay. all the way from the income tax all the way through to the saes tax.

February 13 2014 at 3:30 PM Report abuse +2 rate up rate down Reply
2 replies to jnsmill44's comment
BARRY AND KATHY

And this is a reason to back the ''FAIR TAX''. Among other perks, it does away with EVERY tax on income as it is a neutral sales tax on only NEW FINISHED goods you buy. Those taxes on ingredients or raw materials will not be charged and although the tax seems onerous at app 23% the fact the taxes you mentioned at all levels are not added on and carried over means the final price is reduced by that amount.
Because you also bring home 100% of what you earn, you won't have to file at the end of the year and the government won't have to worry about non-reported income. That means ALL taxes will be collected The shadow economy will be no more and if you want to work harder, make more and not tell the government about it, THEY WON'T CARE.
There is also a PREBATE where the individuals now paying the sales taxes will get a check every month which will cover the amount of sales tax you will be charged on those goods which are currently non taxable such as food and medical. It will be automatically put in your direct deposit account similar to how social security now is. Companies who left for overseas tax havens will return because there will no longer be any corporate taxes and those companies where there is a vat (value added tax) will wish to come here. This will provide more jobs with more income to buy more goods which will be taxed which will increase income for government spending on infrastructure etc while lowering the price on goods because of the law of supply and demand.(more production = more goods means less profit needed on each unit to make more overall profit). More jobs, more income means more spending means more jobs etc. etc.

February 13 2014 at 7:43 PM Report abuse -1 rate up rate down Reply
ga7smi

don't forget the farm subsidy

February 13 2014 at 9:04 PM Report abuse +1 rate up rate down Reply
Margo

I don't have a comment....I have a question.

How much does your yearly income have to be for you to itemize?

February 13 2014 at 2:41 PM Report abuse rate up rate down Reply
5 replies to Margo's comment
mpeter4876

I am retired and pay no income or state tax as my ss and pension is below the minimum level for any tax due..I still am not hurting as I buy only what I need not what I want. If it wasn't for poor folks like me their would be no word like rich folks. Just doing my part in this life cycle.

February 13 2014 at 2:31 PM Report abuse +1 rate up rate down Reply