Discussion:Urban Tax Legends

I'll start:

1) Receiving a 1099 increases your audit risk.

2) Using the pre-printed IRS label increases your audit risk.

3) Filing late in the filing season near April 15 decreased your audit risk.

4) Filing an extension and filing near Oct 15 decreases your audit risk.

5) Taxpayers over age 65 who are still working don't have to pay Social Security tax.

6) The Amish don't pay income tax.

7) Nurses/police/EMTs on call can deduct the cost of their monthly phone bill since they need to have a phone to keep their job.

8) Firefighters can deduct the cost of their lunch since they are on duty 24 hours a shift.

9) If you show you owe at least $1 instead of getting a refund, you are less likely to be audited.

10) There is a Slavery Reparation tax credit for African Americans who never received their '40 acres and a mule'.

11) You can deduct the cost of your car and all its operating expenses (or mileage) as a business expense if you put advertising on the car.

12) You can deduct the cost of your vacation if you go on a job interview (keep that business card of the interviewer) while away.

What have I left off? Please add more.

14) I only have to claim the income for which I received a 1099.

15) I can deduct a gift of up to $12,000 given to my daughter.

16) Police officers can deduct $5 a day as Walking Around Money (WAM).

17) I can deduct the cost of keeping my dog as a security system, and the cost of my pet parakeet as "aereal surveilance".

18) Because the IRS didn't audit me, the deduction I have been taking all these years must be legal.

19) Taxing labor/services is unconstitutional.

23) Filing on extension and claiming a large refund increases your audit risk.

24) The Internet Tax Fairness Act forbids states from imposing sales or use taxes on goods ordered over the internet and shipped from outside the buyer's state.

25) Newly arrived legal immigrants or refugees get a seven-year federal income tax holiday.

28) The federal income tax is voluntary and applies only to those who volunteer to pay it.

31. S corp owners don't have to claim a salary.

32. You can claim your live in girlfriend as a dependent.

33. Someone has to win the Irish Lottery.

35. Most IRS agents/officers are mean and hard to deal with.

36. When a client calls and says "I have a quick question", it does not need a quick answer.

38. If you make a lot of money in one year, they got this special thing called income averaging.

39. My buddy claims his dog as an exemption (or anything beginning with 'My buddy'

43. I didn't collect any money on my sale and reinvestment of mutual fund shares. Also, I invested $ 3,000, and redeemed $ 3,000.

49. It's the accountant's job to figure out how to write that off.

50. If I don't file my return, I don't owe any tax.

51. My tax at year end is determined by how I fill out my W-4.

Great discussion!

56. Why can't I deduct my F-150, I carry my tools to work every day?

59) We can take a deduction on dad's tax return, or the estate tax return, for the clothes we donated to goodwill after dad died.

61. I can use the government's per diem rates to figure out of town expenses for me and my clients, right? [this one is sad, because I see it asked here so often]

62. The realtor said all these settlement expenses on my new residence are deductible.

63. It must be deductible!! I read it in a post somewhere on TaxAlmanac!

66) "Why is my fee so high? I did all the hard work, all you had to do is put it in your software."

 "I even sorted my receipts by month and gave you a separate envelope for each month with all the receipts in them.  It's all there - office supplies, meals, gas, cell phone, advertising purchased in January is in the January envelope.  Everything purchased in February is in the February envelope..."

67) "What do you mean it's wrong? I used Quickbooks and Turbo Tax. It HAS to be right!"

68) "Mom gave me her house when it was worth $200,000. I sold it for $195,000 after realtor fees. I can deduct the loss right?

69) I sold a vacant lot to my friend for $20,000. He only paid me $2,000, so I took it back. The tax appraiser says it is now worth $28,000. I can deduct the loss the $18,000 I never got from my friend, right?

72) I don't have to claim the cash I received, only the checks.

(Good thread idea Kevin)

78. I sold my property and I want to do a 1031 exchange. Can you help me figure out how to do it. (after closing...)

1. 79, "I didn't sell that Vanguard mutual fund; I only moved the money to another fund at Vanguard."

btw, Kevin, you are borrowing from the old story about how men in prison tell jokes, shouting out numbers. "49" "Hah, hah, hah." Another voice shouts 23 and more laughter ensues. Then Mr. Newby asks his cellmate what is going on and learns that all the men know the jokes by numbers, so he yells '28' but no one laughs.

Punchline: 'Some people just don't know how to tell a joke.'

Or the Newby shouts out a number, absolutely slays the crowd because they had never heard it before.

80. We pay for everything, even our groceries and personal mortgage, through our corporation to make it all deductible. We've always done it that way.

In an "ordinary" enhancement, a stripper might be able to make more money but the enhancement also brings personal (not business) use. Much like a tooth whitening - not deductible even if it helps the taxpayer in a work situation. You use your teeth on a daily personal basis. BUT, in Ms. Hess's case, she was enhanced to a 56FF size. The Judge felt this was SO FAR from the norm, it was ONLY done for business reasons.

93. I can deduct all the cost of my kid's college education on my return.

94. I had medical expenses this year. They are deductible, right?

95. I bought some tax preparation software this year because the commercials told me you aren't getting me all the deductions I am entitled to. Can I deduct that?

97. I have to look good to be successful in my career so my jewelry, home furnishings, clothes, car, cat, dog, shoes, dry cleaning, make up, - all of it's deductible, right.

98. But I had a really cool sign made up for my car, so now it's advertising because everywhere I go, I'm advertising my business. That makes it entirely an advertising expense doesn't it.

100. I went on a business trip this year and needed needed by buy new luggage.

I had forgotten that she had several employees do her judge ordered community service work.

116. Loan repayments and drawings from my company are deductible expenses.

I am sooooo tired of having to explain.......

118) One of my favorites: Principal on a loan is deductible, right? Whadda ya mean, it's NOT.

Not really a myth, but tax questions I get called about from non-clients.

121. "I'm doing my own taxes. Can I come to your office to get forms?"

To add to #62, The car dealership who prepared my taxes last year deducted it.

125 Where's the Turkish Bath?

124. Let the 'tax man' open said mail.

Years ago I had a client that received an Important Information envelope during the year. He gave it to at tax time unopened. It was a policy cancellation notice from his insurance company.

"I thought they were taking taxes out all year and now they give me this 1099 Form. Paystubs? Who keeps or looks at paystubs?"

It is sort of like the swallows returning to Capistrano, or the first robin or 'pitchers and catchers reported for Spring training.

Come to think of it, is this really a legend or does it contain a kernel of truth?

And the result after seeing their tax bill: 146. You've got to be kidding! Why do I have to pay so much! (Maybe because you made a chunk of dough and kept it all.)

1. 150 - Home Depot told me the appliances I bought all qualified for tax credits.

To which we replied: "There are lots of good reasons to buy a new house, but paying $1 to get 30 cents back is not one of them."

Them - "We refinanced the boat loan as a home equity loan for the tax deduction even though the interest rate is higher."

Me - "I wish you had called me first. You don't pay income taxes because you have three kids and pay out over 50% of your income just in mortgage interest."

Them - "Of course we pay income taxes. They take it out of my husband's paycheck every two weeks."

Me - "Yes, but you get it all refunded to you in April."

Them - "I don't understand."

Me -

153. After getting IRS Notice of adjustment. Yeah, I got a 1099misc last year, but I didn't give it to you because it was an information copy only, and I just figured that it didn't really matter. 154. Client. I'm getting an $x refund! I'm not paying any taxes!

    Me on rant. Do you understand that this was your money to begin with. Your final tax bill for the year was $10x. Your state bill was $ 5x and you're not getting a refund on that. Plus $ 3x to the local, $XXX to FICA, plus all the amounts you pay in sales, use, head and the myriad of other taxes!!!!!!!!!
    Client. I'm getting an $x refund! I'm not paying any taxes!

Ummmm.... NO.

To which you must say, "What you mean 'WE,' Lone Ranger?"

Client - I worked some this year and my friend said I can file separate, claim my son and get a big refund with EIC" Me - Well, how much income did you earn? Client - $967 Me - Is that total for the year? Client - Yes. My friend said I should get $2,000 back in EIC. Thats what she did. Me - EIC stands for "Earned Income Credit". Your earned income was only $967. I doubt very much you will be $2,000 back. Client - Thats what my friend said. Can you perpare my return that way? Me - The cost would be $250.

Guess what happened...

I'm taking over a tax practice from someone who retired last year, and almost every one of the Sched A filers have said something like #42- "put me down for the same as last year, or whatever the IRS will allow for charitable contributions."

1. 149 - I've actually had 3 this month that I've had to explain why cashing in IRAs, getting a salary increase at work, and however else they managed to increase income by $50,000 this year but only increased withholding by $2,000 - now they owe taxes this year, when they got refunds last year. A shocking surprise to every one of them. Don't kill the messenger.