When he was little, my son couldn’t get enough of “SpongeBob SquarePants.” I eventually fell in love with it too.
And I used to know a fair amount about the cartoon and could best my son – sometimes – when we played Fact or Fishy, a trivia DVD game about the adventures of SpongeBob and his friends in the underwater city of Bikini Bottom.
I thought about the game after reading the National Association of Enrolled Agents’ list of tax myths that many people have come to think of as facts. How would you score on these four questions?
Fact or Fishy? Federal income tax returns are always due on April 15.
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Fishy. Not always. Generally, April 15 is the due date for filing your federal individual income tax return. But that’s not true when April 15 falls on a weekend or legal holiday, which means you'll get more time. The District of Columbia observes Emancipation Day on Friday, April 15, so you have until Monday the 18th this year.
Fact or Fishy? If you file for an extension, you don’t have to pay by the deadline.
Fishy. Come on, it’s the government. When you file IRS Form 4868 to get an extension to file your return, it does not allow you to delay paying your taxes.
Here’s another fact: Get more time if you want, but the penalties for not filing or not paying on time are no joke. Even if you don’t have the money to pay your taxes at least file your return. Search irs.gov for “Eight Facts on Late Filing and Late Payment Penalties.”
Fact or Fishy? Married same-sex couples can continue to file using the “single” status.
Fishy. The IRS has issued a ruling that, as of tax year 2013, legally married same-sex couples generally must file as married, either jointly or separately.
The IRS has helpful answers to frequently asked questions by married individuals of the same sex. Go to irs.gov and search for “same-sex spouses.”
Fact or Fishy: I can deduct the entire cost of my business lunches.
Fishy. I hear this all the time from entrepreneurs bragging that they can fully deduct business meals. If you think that’s true, get thee to a tax professional before the IRS gets you. When it comes to a business lunch, it’s a deduction. You can deduct only 50 percent of meals as an entertainment expense, according to the National Association of Enrolled Agents.
“Newbies to the wonderful world of taxes often confuse credits and deductions,” the association says. A deduction reduces the total amount of income that is used to calculate the taxes you owe. But people confuse a deduction with a credit, which reduces your tax liability dollar-for-dollar.
I have a couple fact-or-fishy questions of my own:
Fact or Fishy? The IRS is too overwhelmed to catch me if I don’t claim all my taxable income.
Fishy: Mess with the IRS if you want. But I wouldn’t.
I’ve heard people say they know a lot of folks who don’t report all their required income and the IRS has yet to catch them. It’s true the odds of not being audited are in your favor. But if you are caught, it’s not pretty. Be honest and find out what income you should report. For more guidance, go to irs.gov and search for “What is Taxable and Nontaxable Income?”
Fact or Fishy? Yippee, a refund is a good forced-savings strategy.
Fact AND Fishy: As of the second week of February, the average refund was $3,224. If you divide that over a year, that’s almost an extra $269 a month you could have had to pay down a debt or cover various expenses.
But I get it. Some people don’t have the discipline to save on their own, so they’re fine with their employers taking out too much money from their paychecks. If you aren’t going to change this strategy, at least make sure the refunded money isn’t wasted. This week is America Saves Week. The slogan for the nationwide effort, which includes Military Saves Week, is “Start Small. Think Big.”
Whatever the size of your refund, you can divide it into two or three financial accounts, including a savings account, an IRA or a U.S. Series I Savings Bond. You can use IRS Form 8888 or tell the IRS where to electronically direct your money so you won’t be tempted to race your refund to the mall.
This tax season, resolve to learn the facts even if someone else is preparing your return so that you don’t end up doing anything fishy.