It’s your least favorite subject and nobody wants to deal with it, but in about two weeks you will be required to file your 2020 tax return. As a reminder, the deadline is May 17, 2021. While that is true, there are some hearsay, rumors, conspiracy theories and myths surrounding taxes. Let’s examine a few:
The Jail Myth
A common myth surrounding taxes is, “If you owe the IRS large amounts of money, you’re going to jail.” The IRS will not incarcerate you simply because your debt is large. There may be several reasons why you have a large tax liability. For example, it could simply be that you have experienced a substantial increase in your income and therefore not enough taxes were withheld. However, if you under report your income and start hiding money from the IRS then you most certainly can go to jail.
The Spousal Myth
Another myth is, “If you file a joint tax return you are stuck with the debt of your spouse for the rest of your life.” The internal Revenue Service has an innocent spouse relief option you can exercise. Through this option the innocent spouse can be relieved of the responsibility for paying penalties, taxes or interest if your spouse or former spouse improperly reported items or omitted items on the joint tax return without your knowledge. I once represented a client whose spouse falsified their tax returns. This individual even inflated charitable contributions and expenses on their tax return. Let’s just say, my client went home and was set free from joint liability, while their spouse went some place special for a few years “on vacation.” For better or worse.
The “No Deal” Myth
“You can’t make a deal with the IRS to settle your debt.” This too is a myth. An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or if doing so creates a financial hardship. It just can’t be any old excuse will do. It’s really case specific. So, your circumstances may qualify you for a deal.
The Penalty Myth
Have you heard this one? “The IRS does not forgive interest and penalties.” While obtaining relief may be difficult there are interest and penalty sections of the Internal Revenue Code in which you may qualify for relief. If you made an effort to comply with the requirements of the law but, due to circumstances beyond your control, you could not comply with tax requirements your interest and or penalties may be forgiven. My pastor talks about cheap grace. Well if you want forgiveness from the IRS there ain’t no cheap grace!
The Business Myth
This is a major myth! “Business taxes are not your personal responsibility.” Business taxes know as Trust Fund Recovery Penalty, may be assessed against you as an individual or personally if you are deemed responsible for collecting or remitting withheld income and employment taxes from employees and have failed to turn those amounts over to the government. Then, you will be held personally liable for business taxes. This kind of tax may follow you for a long time.
Let me end with a story. I recently heard of someone who kept putting off filing her taxes. Eventually, she filed some of her old tax returns only to discover that the statue of limitation had expired. As a result of not filing on time, she lost over $4,500.00 in refunds. I don’t know about you, but I would not mind an additional $4,500.00 dollars. In other words, I think filing on time is a good idea, how about you?