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Debunking common tax myths: E-filing won't trigger an audit
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Myth 1: E-filing increases the chance I'll be audited.
By Karen Bleier, AFP/Getty Images file
In 1913, you could have carried a copy of the CCH Standard Federal Tax Reporter, an annual compilation of U.S. tax law, in your briefcase. Today, you'd need a wheelbarrow. The 2010 publication contains more than 71,600 pages and will probably grow even fatter in 2011.

As the tax system has grown increasingly complex and convoluted, myths about the tax code and the inner workings of the IRS have multiplied. Some popular misconceptions could cause you to pay more money than you owe or delay your refund. Others could trigger an audit. And some could land you in jail.

With April 15 less than two weeks away, USA TODAY asked tax professionals and the IRS to share some common tax myths and misunderstandings that trip up taxpayers. Here's a look at some of the most popular urban legends:

Myth 1: E-filing increases the chance I'll be audited

Through March 12, nearly 83% of individual taxpayers who filed their tax returns did it electronically. But nearly 12 million submitted their returns the old-fashioned way: by U.S. mail. Some taxpayers mail their returns to save on filing fees. Others don't trust the Internet. But some taxpayers take the low-tech road because they've heard that e-filed returns are more likely to be singled out for audit.

The IRS says this is flat-out wrong.

"The way IRS determines whether a particular return is audited has nothing to do with the way that you filed it," says IRS spokeswoman Michelle Eldridge. In fact, e-filing could reduce your chance of an audit, she says. "When you file electronically, you file a more accurate return, so you're less likely to hear from the IRS."

Myth 2: Filing an extension will trigger an audit

Taxpayers who can't get their acts together by April 15 can give themselves an extra six months to file by filing an extension. But some taxpayers worry that filing an extension will draw unwanted attention from the IRS.

The IRS doesn't release the criteria it uses to decide who gets audited, because it doesn't want to tip off tax cheats. But most tax practitioners believe there's no correlation between filing an extension and getting selected for an audit, says Maureen McGetrick, tax partner at BDO in New York.

In fact, filing for an extension could reduce your chance of an audit, because you're less likely to leave out information — such as an overlooked Form 1099 from your bank — that could lead to a mismatch between your tax return and IRS records, McGetrick says.

You don't have to give the IRS a reason for requesting an extension: Approval is automatic. To avoid late-filing penalties, file your extension request on Form 4868 by April 15.

Myth 3: Filing an extension gives me more time to pay

That would be nice, wouldn't it? Too bad it's not true. If you don't pay the IRS what you owe by April 15, you'll face interest and penalties. If you can't get your paperwork together by April 15, you should estimate how much you owe and submit the payment — along with your request for an extension — by April 15.

Myth 4: If you're self- employed, you can deduct all of your expenses

The recession has forced thousands of laid-off workers to become freelancers, consultants or independent contractors. Self-employed workers are eligible for a long list of deductions, but there are limits on what you can write off. You can deduct your business-related expenses, but not expenses that are reimbursed by another party or aren't business-related, McGetrick says.

For example, some taxpayers believe that if they use their car for business, they can deduct 100% of the operating costs. But if you also use the car for personal trips, your deduction is limited to the percentage of time you use the car for business.

Likewise, you can't claim a home office deduction just because you have a desk and computer in your family room. To claim the deduction, you must have a place in your home that's used "regularly and exclusively" for business, McGetrick says.

The IRS has increased scrutiny of taxpayers with self-employment income in recent years, so self-employed workers need to keep good records of their business expenses, McGetrick says.

Myth 5: Social Security benefits are tax-free

The economic downturn has forced many laid-off workers to take early retirement, triggering a surge in Social Security claims. Some of these new beneficiaries may be surprised to learn that their Social Security benefits are taxable. "People work decades and put taxes into the system and think it's time to reap the rewards," says Joseph Montanaro, a financial planner for USAA, a financial services firm. "They don't realize, in fact, that there are thresholds that could trigger Social Security being included in their income."

If most or all of your retirement income comes from Social Security, you won't have to pay taxes on your benefits. But if you receive income from pensions, retirement-plan withdrawals and other sources, up to 85% of your benefits could be taxed.

For more information on how much of your benefits could be taxed, go to

Myth 6: I can claim my grown child/elderly parent/dog as a dependent

The biggest myth about claiming a dependent is that it's easy to do, Montanaro says. Even where your children are concerned, the rules for dependency exemptions are complex, he says.

For example, suppose your 22-year-old son has dropped out of college and moved back home. Even though you're providing free rent and meals, the child may not qualify as a dependent because he's over 19 and no longer a full-time student.

Likewise, you may be able to claim an elderly parent as a dependent, but only if he or she meets certain tests. You must provide more than half of the parent's support during the year, and your parent's 2009 gross income can't exceed $3,650. Gross income doesn't include Social Security benefits or tax-exempt income. However, even a small pension could make your parent ineligible as a dependent.

You must provide a Social Security number for anyone you list as a dependent, so don't even think about trying to claim your dog.

For more information, see IRS Publication 501.

Myth 7: The IRS sends taxpayers e-mails about their refunds

Within the next few weeks, you may receive an official-looking e-mail claiming to provide information about your refund. Don't open it, even if it looks like it's from the IRS. This is a common tactic employed by crooks to steal your identity. The IRS doesn't notify taxpayers about their refunds via e-mail, says Terry Lemons, spokesman for the IRS.

Myth 8: A big refund is a good thing

So far this year, the average refund is $3,036, up more than $200 from the same period a year earlier. But a big refund is no windfall, says Gary Lundberg, product management director for CompleteTax, an online tax software program. "It was just an interest-free loan to the government," he says. "My perspective is that it's better off to have that money in your pocket, using it for the things you need during the year."

Giving the government an interest-free loan is especially misguided if you're paying 18% or more on credit card debt, or are frequently short on cash. "Often, the very people who struggle to make ends meet on a monthly basis are the ones who overpay Uncle Sam and receive an annual refund," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling.

If you've already received a big refund, this is a good time to adjust your withholding so less of your money goes to the IRS this year. Go to and search for "withholding allowances" to find a worksheet that will help you determine how many allowances you should claim on your W-4. You can adjust the number of allowances on your W-4 at any time during the year.

Myth 9: Wages aren't taxable income

Proponents of this view, sometimes referred to as the "861 argument," contend that a provision in the tax code excludes income from U.S. sources earned by U.S. citizens from federal taxes. The IRS says this premise is based on a misreading of the tax code. In 2008, a federal court sentenced actor Wesley Snipes, an adherent of the Section 861 position, to three years in prison for failing to file tax returns. (Snipes has appealed the sentence.)

Myth 10: Paying taxes is voluntary

In the instruction book for Form 1040, the IRS states that the tax system is voluntary. That has led some tax protesters to claim that filing a tax return or paying taxes is a matter of personal choice.

But according to the IRS, the term "voluntary" refers to our system of allowing taxpayers to determine how much they owe and fill out the appropriate forms, instead of receiving a bill upfront from the government. Filing a tax return isn't voluntary, and neither is paying your taxes, the IRS says. The IRS' position has been upheld by numerous court rulings, and several individuals who promoted the notion that taxes are voluntary have gone to jail.

A variation on this theme is that taxes are unconstitutional, or that the IRS doesn't have the authority to enforce the Internal Revenue Code. Last week, Kenneth William Wells, 52, of Happy Valley, Ore., pleaded guilty in federal district court to one count of tax evasion for, among other things, promoting tax-avoidance schemes based on these arguments. Wells, who was charged with evading $185,000 in taxes, interest and penalties, faces up to five years in prison and a $250,000 fine.

The IRS takes a dim view of tax returns that contain what it calls "frivolous arguments" — generally, the view that the taxpayer isn't required to pay taxes. The penalty for filing a frivolous return is $5,000.

"The bottom line," Lemons says, "is that there's no secret way out of paying your taxes."

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