Kevin Thompson, CPA, did a recent internet search revealing some horrifically interesting ideas about paying taxes. Below are just a few of some of the worst ideas that people have come up with regarding doing their taxes.
Thinking that filing taxes is unconstitutional by citing the 16th amendment. The whole idea of being “free men” and the unconstitutionality of taxes has been played out for decades. Ask Wesley Snipes how that worked for him. Folks, this has been acted upon by every court in every state and nary has a one expressed any interest in the idea. If this is your position, let it go as it will not work.
Telling people they didn’t pay taxes because they received a refund. (It actually means they had too much deducted out of their paycheck.) “In my practice” says Kevin Thompson, CPA, “with our average taxpayers, we try and get clients in the $1,000 range of either owing or receiving refunds.” Thompson goes onto say, “this philosophy has changed for the higher net worth clients. With interest rates at all-time lows, it is often more strategic to overestimate taxes and eliminate the exposure to expensive, nondeductible penalties.” California no longer offers a safe harbor provision for taxpayers with more than $1,000,000 in taxable income. “That means that these taxpayers have to project income on a quarterly basis and pay in their estimated taxes. With the volatility in stock markets, annual bonuses for executives and higher profits in S Corporations and LLC’s, it is not uncommon for a California taxpayer to find himself in a penalty position due to a large transaction in December.”
Not counting “cash” as income. “Yeah, right” says Thompson. The IRS estimates they lose $15 Billion in revenues annually due to the improper accounting and reporting for cash transactions. In the UK they believe they lose $8 Billion pounds annually and call cash payments “morally reprehensible.” http://www.theguardian.com/politics/reality-check/2012/jul/24/tax-taxavoidance “Last time I checked” says Thompson, “the USD states that it is legal tender for all debts.” I just know that the US Treasury Department together with the Worlds taxing authorities continue to crack down on cash. So, if you are living in the world of cash and not reporting it, you should be prepared for a bad ending.
Deciding that they don’t have to pay taxes because they are over 70 years of age. There is no magic number. Some have to pay taxes after death. “Although there are many advantages to aging in this country, an abatement of taxes for the elderly is not one of them” says Thompson.
Not paying taxes because they’re on Social Security. That is only true if they have no other source of income. If SS is your only source of income, you do not have to pay taxes. But if you have other sources of income like interest, dividends and capital gains, with the provisional tax calculation, some or up to 85% of your SS income can be taxable. https://www.fas.org/sgp/crs/misc/RL32552.pdf
Citing a pet as a dependent. “Man, if my wife is reading this she’ll think of new things for the Bully Violent” says Thompson. There is never a scenario where pets can be claimed as dependents.
Under the impression that their tax preparer works for the government or on the government’s behalf. In fact, a tax preparer can be their best advocate in tax matters with the IRS. “This can be both true and false” says Thompson. “If a client is being investigated for evasion, conversations with tax preparers are not protected and subject to discovery.”
Making the mistake of not filing W2 or 1099 income if they didn’t receive a form in the mail. That income has to be included. The IRS has an electronic matching initiative most commonly referred to as CP 2000. Thompson says “80% of the letters received by this office from the IRS are a result of that initiative. The IRS has the information and the technology to match to your returns so you’d better report it or be prepared for an examination resulting in interest and penalties too.”
They believe they don’t have to pay their tax professional a fee if they don’t receive a refund. Thompson says “do I get a bonus if I get a larger refund?”
Can you think of any more dumb ideas?