When it comes to federal agencies, the IRS has a stigma that makes the NSA look like good people. As with anything that inspires dread, the reality is often less fearsome than the perception. Forbes recently called out five of the top fears people have in their dealings with the taxmen, and why those apprehensions aren’t as bad as they seem.
- Claiming Tax Deductions — Many people believe that claiming numerous deductions can put them on the audit radar. The only deductions you should fear taking are the ones you know aren’t legit. If you have the documentation to prove them, deductions are yours for the taking. Unless they’re unusually high for your income level, there’s little danger of triggering an audit by claiming what’s yours.
- Surviving an Audit — Less than 2% of individual returns are audited, and many of those aren’t the random ones people are deathly afraid of. If you’re selected for an audit, there’s a good chance it won’t be a full audit—the in-person, pull-out-every-receipt-from-
your-shoebox kind. Most audits done via mail. If an in-person audit is in order, you don’t even have to appear, providing your CPA or tax attorney has your authorization to communicate with the IRS for you.
- Being Too Broke to Pay — If your taxes exceed your ability to pay, just be sure to reach out to the IRS before they reach into your bank account or paycheck. Long gone are the days where debtor’s prison was the only option for people short on tax funds. The IRS has payment plan options for paying outstanding tax bills over time and even a mechanism for negotiating partial payment of your entire tax bill if it’s apparent full repayment isn’t possible. The key is to let the IRS know your situation rather than hiding. For those inclined to lay low, the IRS can garnish wages, and take funds from your bank accounts if they think you’re refusing to work with them.
- A Letter From the IRS in Your Mailbox — IRS letters usually don’t contain scary threats. But you do need to read and respond, since the IRS is serious about receiving a reply. If what they’re asking you for is confusing, show it to your CPA and ask for help resolving the issue.
- Screwing Something Up — The IRS understands that taxpayers are imperfect. If you’ve incorrectly reported something on your tax return and get called out on it, explain the mistake, fix it, and pay any necessary deficiency. Honest mistakes are dealt with much less negatively than attempts at hiding income. So just make sure your mistakes are honest ones and you should be fine.
Fear can drive us to do things that aren’t smart, like trying to hide or ignoring stressful situations. But if you remind yourself that the reality isn’t as scary as the perception, you’ll be able to deal effectively with any IRS interaction.