5 pieces of popular tax advice that are actually baloney
The world is full of tax advice this time of year, but not all of it is good. Here are five misguided, worthless or flat-out bad pieces of tax advice that tax pros say they wish never existed.
Bad advice: Get an extension — you'll have more time to pay your taxes!
Why it's bad: It's wrong. Getting an extension gets you more time to file, not more time to pay. "I see that every single year," says Tyler Gibbons, a CPA and partner at Riser McLaurin & Gibbons in North Charleston, South Carolina. "If an extension meant you didn't have to pay your taxes until October, the [April 17] tax deadline would mean nothing to anybody. Not a single American would file their taxes in April if that were the case."
Better advice: If you don't have enough cash to pay your taxes, hand over what you can by April 17, then get on a payment plan with the IRS. As long as you're responsive and provide information when requested, the IRS typically doesn't resort to wage garnishment or other scary stuff, Gibbons says. "They do that when you just ignore them," he says.
Bad advice: Don't get an extension — you'll get audited
Why it's bad: It's bogus. "For some reason, that is just one that comes up all the time," Gibbons says. The result is that people rush and throw together a tax return in April even if they don't have everything in order. "They think if they get extended that they're going to get audited, or it raises their probability of getting audited. And it's just bad advice," he says.
Better advice: Get an extension if you need it (but get it by April 17). Better to file later and correctly than to file in a hurry and make mistakes, Gibbons says. You also can get a sense of your situation now by putting your numbers into a tax calculator.
Bad advice: Buy real estate for the tax breaks
Why it's bad: Although mortgage interest and property taxes can be deductible, buying real estate has to make sense for other reasons too, says Eric Tyson, co-author of the forthcoming "Selling Your House for Dummies." If you plan on moving soon or aren't going to itemize on your tax return, or if houses are overvalued in the area, buying may not be a good idea. "I don't care if you get the tax break if it's not a good deal," Tyson says.
Better advice: Ignore people who make taxes the No. 1 reason to buy real estate. Also, think about your tax-filing habits. You have to itemize to deduct mortgage interest and property taxes; it won't do you much good if you take the standard deduction, Gibbons says. "Then, owning a home is just owning a home, and you're not getting the benefit of the quote-unquote 'tax write-off,'" he says.
Bad advice: Don't take the home office deduction — it will trigger an audit
Why it's bad: It's not true. "We hear that every day," says Jordan Amin, a CPA and partner at EisnerAmper in Iselin, New Jersey. "I don't believe that the home office deduction gives rise to an audit any more than anything else does."
Better advice: Take the deduction if you qualify, Amin says. "Even if you were to be audited, if you're doing everything properly and accurately, then that would be fine. So why would you leave a deduction on the table?" he says.
Bad advice: You don't have to report money from a side hustle
Why it's bad: Having a side job or getting paid wages in cash still counts at tax time. "They think that if they're not getting a form, like a 1099 or a W-2, that they do not have to report income. We hear that all the time," Gibbons says.
Better advice: Report all of the income you earn — even if you were paid in cash and even if you didn't get a W-2 or 1099 from the person who paid you. "That mentality of, 'If I get cash, it's not taxable'…. It just makes us wonder sometimes," he says.
The best advice of all
Here it is: Unless they're qualified tax professionals, your neighbors, in-laws and co-workers probably aren't the tax gurus they say they are.
"You wouldn't necessarily take advice, if you had the flu, from the guy at the gym. I'm not sure you should take tax advice from that person either," Amin says.
"If it sounds like it's too good to be true, it's probably something you should look into and get advice from a professional, rather than from the guy on the bus," he says.