4 Tax Myths That Can Cost You Some Serious Moolah
The federal tax code is hideously complicated. Even tax experts aren't always sure what some of the more obscure provisions really mean. So it's no surprise that a number of myths have sprung up about how taxes work. Here are some of the most common myths -- and why you shouldn't believe them for a second.
If you think you're safe from an IRS audit because you make under seven figures, think again. It's true that IRS auditors tend to focus on individuals with $1 million or more of annual income because they're more likely to be able to squeeze out a significant amount of extra taxes from high-income taxpayers. But lower-income returns sometimes come under fire too, depending on what's on your return. For example, taxpayers with reported income under $25,000 who claimed the Earned Income Tax Credit were audited twice as often as the average individual taxpayer in 2014.
Because of IRS budget cuts and resulting rounds of layoffs, overall audit rates have dropped to embarrassingly low percentages. But as the IRS continues to automate more functions, the agency will become able to flag more sketchy returns and pick up on unreported income without human intervention. And just because your return was accepted without a murmur doesn't mean you're safe: the IRS can audit you for up to three years after the tax year in question (or six years if you omitted 25% or more of your income from the return).
Source: Fool.com
