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Myths concerning tax filings

Most Michigan taxpayers understand that the federal tax code is extremely complex. There are a whole host of interpretations regarding various provisions. And there are myths concerning filing of taxes that, when believed, can lead taxpayers into trouble with tax authorities.

For example, a prevailing myth is that only individuals in higher income tax brackets face a tax audit. Though those with six-figure incomes are a larger target for the IRS, those claiming the earned income tax credit with income under $25,000 also face frequent audits.

It is also a huge mistake to not report cash income because of the belief you are leaving no paper trail. The IRS can look at expense reports in seeing how much you spent as compared to money you claim on your returns. The agency can also look at accounts and deposits in determining whether what reporting is accurate. In today’s world, the IRS can also look at e-commerce and internet activities.

One commentator suggests that we may see additional audits due to automation of functions. Such automation allows for tax authorities to identify unreported income.

The IRS generally has time on its side when it comes to conducting audits. In most circumstances, the IRS has three years to audit returns. In the event there was a reported omission of at least 25 percent of income, the IRS can have six years to audit your returns.

Unfortunately, not all tax preparers understand how to do their job properly, either. Unqualified individuals preparing tax returns make mistakes and likely do not understand the complexities of the tax code. For this reason, it can be important to seek the advice of a tax attorney with sufficient knowledge and experience dealing with the tax code and the IRS.

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