2020 Tax Myths, Scams, and Updates
Although tax season is heating up and things are getting a little hectic around the BJM – Bach, James, Mansour & Company office, we still wanted to keep communication lines open. This seemed to be an opportune time to share some tax myths, updates, and outright scams that have been floating around lately. While you may have heard of some of these before, there’s a good chance that at least a few are new to you – and these may be unfamiliar to your friends and family members. Once you’re done reading this, feel free to forward!
My refund is “free money” from the government. Nope. Just the opposite. If you’re receiving a refund, it means that you overpaid your taxes, and so the government is refunding the excess back to you. You actually gave Uncle Sam an interest-free loan.
It’s too late to impact my 2019 tax returns. Unless you’ve maxed out your retirement savings (and if so, congratulations), you may still be able to set up, or add money to, an IRA, and deduct those deposits from 2019 taxable income.
A tax filing mistake will hurt your credit score. Probably not. But, if you’re having a tax issue, please feel free to give us a call.
If I file an extension, I don’t have to pay taxes. No, this is incorrect. You file a form to extend your tax return filing deadline to as late as October 15, but you still have to pay any taxes you owe by the original April 15 deadline. If you don’t pay, you’re likely to accrue late fees and other penalties.
If I cannot pay my entire 2019 tax balance, then I shouldn’t file my return. No, this is also a common misconception. Even if you cannot afford to pay what you own on your 2019 taxes, you should still go ahead and file your 2019 income tax return. Pay what you can, to help minimize future fees and penalties.
I changed my withholdings last year, so I’m fine this year. You should really verify your withholdings every year. The tax laws have changed, and if your income has increased or decreased at all (ex: your spouse makes more money or you have more investment income), this may put you in a different tax bracket.
Can’t I just turn in my old W-4? While this would be convenient, the W-4 form was redesigned for 2020, so you’ll need to fill out a new W-4 and submit it by the deadline.
The IRS called and asked for my credit card number to pay back taxes. Red Flag!! This is a scam!! If the IRS really had a question (about back taxes or otherwise), they would contact you via mail, not by phone. If you have a tax issue, please give BJM a call, and we’ll work out a plan of attack.
If I haven’t heard from the IRS by the end of 2020, I’m not getting audited. Wishful thinking, but again, incorrect. The IRS discloses that it will usually audit up to three years back, but will go further back if they identify “substantial errors.” Audit notification is by mail, not by phone. If you’re a BJM client, we stand by our work and will respond to questions or audit requests.
That guy with the costume and the giant foam finger is a CPA, right? Please think twice before bringing your taxes to a strip mall tax preparer. Anyone who prepares taxes for compensation must have a Preparer Tax Identification Number (PTIN), which you can verify here. The challenge is that some preparers only receive a week of training, and many firms close up shop on April 16. Consider that risk versus having a CPA, with years of experience and tax knowledge, at a firm that’s open year-round, prepare your tax returns.
If you have any additional questions about these items, or about your income taxes, please give us a call. While you’re meeting with BJM’s experienced CPAs about your 2019 taxes, let’s take a few minutes to talk about your 2020 taxes as well. You have most of the year left to benefit from adjustments we can make today.
~Neal Bach, CPA