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Tax Myths Busted!

One more week until Tax Day... Have you filed yours yet? I haven't (probably should get on that, actually), and when I read in USA Today that roughly 47% of Americans won't even have to worry about paying federal income taxes, I start to wonder if I should even bother. Oh sure, there's the threat of prison time for tax evasion, but really, what's the point if half the damn country isn't going to pay up and get off scot-free?

Tax time can be either very trying or something to actually look forward to. While some people are dreading the thought of gathering all their receipts, W-2s, and other documents to try and decipher how much they'll owe Uncle Sam, others have visions of refunds and rebates dancing in their heads.

To shed some light on the hoopla surrounding April 15th, here are 5 common tax myths, busted!

1. Nearly half of Americans won't pay taxes. Hey, this sounds familiar. While it's actually true, it's mainly restricted to very low income families and seniors, while others will save themselves the trouble with earned income and saver's credits.

But just because they're not surrendering to federal income tax doesn't mean they're completely tax exempt. They still have to pay social security and Medicare taxes, assuming they're, uh, working. If they're driving anywhere, they gotta pay tax on gas, and if they like to go get liquored up or out for a smoke, there's taxes on alcohol and tobacco as well. Throw property taxes in, and the percentage of tax payers goes up higher. So really, no one can escape the tax man.

2. My tax returns are all in Greek. It's common knowledge: Taxes are ridiculously complicated. The instructions for the 1040 form, the one most of us use to file our taxes, is over 100 pages long. That's a lot of trees.

The good news though, is that the majority of Americans have simpler tax returns than they realize. Most of us get our income from standard wages, salaries, and pensions, meaning it's easier to calculate our deductibles. The 1040EZ, the tax form nearly half of Americans use, is only 13 lines long, making things much easier to understand, especially if you use software to back it up.

3. I don't have any deductible business expenses. Most people think that because they're not business owners, they don't have any employment-related expenses they can report. But think about this - have you ever had to spend anything yourself for your job?

Teachers can deduct extra school supply expenses they purchase, and anyone that chooses to work for themselves can look into incorporating themselves as a business if they want to become eligible for savings on health insurance premiums and travel expenses.

4. We're overtaxed. Hell yes, we are! Moving on...

Okay, seriously though, as bad as we think we have it, other parts of the world are even worse off in this department. Back in 2006, 30 of the world's richest countries ponied up about 36% of their gross domestic product, with some European countries exceeding 40% due to extensive government services. So yeah, things could actually be worse.

5. If we raised taxes, we'd get rid of the deficit. Nope, not really. In order to just reduce the deficit to 3% of our GDP, taxes would need to be raised by about 40%. That would mean a tax hike to about 14% for the lowest income rate and as much as 48% for top rate. And that's to reduce the deficit, not eliminate it entirely. So not only would it be political suicide to even suggest such a hike, it wouldn't even wipe out the debt.

Tax Lien Homes – How to Buy Them Before Your Competition

In the current economic slowdown, more and more properties are being lost to mortgage foreclosure and tax foreclosure. It's sad for the people losing their homes, but it's a fact of life that won't change any time soon. If you're interested in investing in property, now is the definition of "striking while the iron is hot." One of the best ways to invest is by purchasing tax lien homes... but probably not the way you'd expect.

Most people who are interested in owning tax lien homes follow the traditional route: they attend the tax lien sale. Properties are sold to the highest bidder, and payment is expected up front, right then and there. Whoever is the winning bidder is awarded a tax lien on their chosen property. Unfortunately for them, rarely is anyone able to get a good deal on tax lien homes this way.

Counties use the bidding process to get the highest possible price on these liens. Any property worth owning will be bid up to near retail value by agents for large tax lien firms and other average bidders. These firms have tons of money, and thus, can afford to make a smaller return on their investment than you. In a bidding war with one of their agents, you'll almost certainly be outbid.

Worse than that, if you are successful, there is a long waiting period for the former owner to redeem his property-- that is, pay off the taxes and penalties and bail his property out-- before the new owner can foreclose on the lien and take possession. This waiting period is up to 5 years in some states. (The royal pain that is foreclosing on a tax lien is another story altogether!)

Worst of all, 95% of the time, the owners do pay off their taxes. So don't get your heart set on ever actually owning one of these tax lien homes! It's great if you're simply looking for a good interest rate on your money, however, in that case you'll have to deal with the risk that you'll end up with a property you didn't want. Since you can't inspect the properties beforehand, that should be enough to scare off just about any smart investor.

There's a much easier way to buy tax lien homes that allows you all sorts of benefits bidding at the tax sale doesn't: simply contact the tax delinquent owners yourself before the tax sale or redemption deadline, and offer to buy the property from them yourself! Unlike at tax sale, you'll be able to inspect the property first, and you can negotiate a deal with the owner for a much, much lower price than you'll get competing with other bidders.

If you're thinking it's too much of a pain to deal with these people, think again. The tax delinquent owners are frequently people who have already made up their minds to walk away and lose everything to the government, so when you offer them something, anything, it's almost always a better deal for them. Believe it or not, they're usually actually happy to hear from you. Those that aren't willing to make a deal are usually not bitter or difficult to talk to either. Really, you're trying to do them a favor-- and they know it.

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