Kevin McCormally's Tax Tips-Honesty is the Best Policy
Monday, March 13, 2006LINDA O`BRYON: And here`s a look at what`s happening tomorrow. We`ll see February retail sales, January business inventories and earnings from brokerage firm Goldman Sachs Group.
It`s that time of year again, time to get out the calculators, the pencils, and the forms and get ready to file your Federal income taxes. To help you along, once again this year we`ll bring you tax tips every Monday night for the next five weeks. In tonight`s tax tips, our tax guru says that big bad IRS isn`t so scary after all. Here`s Kevin McCormally, editorial director of "Kiplinger`s Personal Finance."
KEVIN MCCORMALLY, EDITORIAL DIR., "KIPLINGER`S PERSONAL FINANCE": With St. Patrick`s day coming up, I want to talk about luck. What`s that got to do with your tax return? Simply this, you don`t need the luck of the Irish to avoid an audit. I say that because I think Americans worry way too much about the IRS. Sure, such fear is a good thing if it steers someone away from cheating.
I`m not sure it works very well, though, since the IRS says the tax gap -- the difference between what`s owed and what`s paid -- is almost $300 billion a year. That means honest taxpayers have to pay an average of $2,000 each to make up for all that cheating. But fear of an audit is a bad thing if it scares you away from legitimate tax write offs. This time of year, you often hear experts talking about red flags that supposedly guarantee an audit. A common trigger reputably is home office deductions, for example. But if you deserve such tax- saving write offs, you should by all means take them.
In reality, very few returns go through the audit wringer. The latest numbers show that just one of every 150 returns gets audited and fewer than one in 600 taxpayers has actually sit down face-to-face with a revenuer. Most audits are done by mail, to clear up discrepancies picked up by computer screening of returns. Now if you`re planning to cheat, please, by all means, worry about an audit. But if you`re honest, it makes a lot more sense to spend your time figuring out how to make the most of the legitimate breaks in the law-- and there are plenty of them. Good luck. I`m Kevin McCormally.
