Contact: Gigi Thompson Jarvis, CAE
202.822.6232 x119
gjarvis@naea.org
click here for a PDF version
For Immediate Release
Most Common Taxpayer Misconceptions, Part Two
WASHINGTON, DC (February 24, 2011)—What are the most common taxpayer misconceptions? Federally-licensed tax specialists from the National Association of Enrolled Agents (NAEA) were asked last week, and the answers keep coming in!
In 2011, the most common misconception may be that taxes are due on April 15. Due to the Emancipation Day holiday that is celebrated in Washington, DC, all taxpayers have an extra few days this year. Taxes must be filed by April 18, 2011.
Another big source of confusion is filing extensions for tax returns. When an extension is filed, it is just an extension on the time to file; it is not an extension on the time to pay! If a taxpayer owes $1,000 on a personal return and files an extension, he or she has until October 15 to file the return. But, if the $1,000 is still owed on April 18, interest and penalties start to accrue. It was also reported that many taxpayers believe that filing an extension increases their chances of being audited—not so.
Reporting state refunds on federal returns seems unnecessary to a lot of taxpayers who don't understand the connection between the two. The reason this reporting is necessary is that taxpayers who itemize their deductions are allowed to deduct all state taxes paid or withheld on their federal return. A refund from the state changes the tax liability for the year the deduction was claimed. That refund is included as income for federal purposes if the taxpayer itemized deductions in the prior year. Taxpayers may find it odd that they are paying tax on a refund, but they are correcting an over-deduction from the previous year.
"I bought a new washer and dryer and they say 'energy efficient.' Can I take an energy credit for them?" A common mistake is that ALL energy-efficient household appliances qualify for the tax credit. The Department of Energy's EnergyStar website identifies qualifying purchases.
The inherited IRA is plagued by misconceptions, including, "The IRA I inherited has to be taken out all at once," "Inherited IRAs are not taxable," and "I can convert it to a Roth IRA." Heirs without expert tax guidance can wind up paying a lot more than is necessary.
Social Security is yet another hot spot of misconception! Seniors have been told that once they have reached full retirement age they will receive full Social Security benefits, regardless of how much they earn. Many are unaware that their benefits may be taxable, depending on the amount of income received from all sources.
There may be enough misconceptions about taxes to fill the Internet, but taxpayers who want to avoid the pitfalls resulting from misinformation and take full advantage of all of the credits and deductions to which they are entitled should contact an enrolled agent. Enrolled agents ("EAs") are the only federally-licensed tax experts and must undergo a background check and pass a stringent three-part exam in order to qualify. To keep the license, EAs must complete annual continuing education requirements that are reported to IRS and adhere to a code of ethics.
###
About the National Association of Enrolled Agents (NAEA): NAEA is a non-profit membership organization composed of tax specialists licensed by the US Department of the Treasury. To find an enrolled agent in your area, go to the Find an Enrolled Agent Directory at www.naea.org.