If a person intentionally tries to evade taxes with whatever lies they create, it is considered tax fraud. In our efforts to owe as little tax as possible to the IRS, we can find it really tempting to fudge the number “just a little bit” in our favor. However, this white lie of yours will be considered as a full-fledged tax fraud by the IRS. In other words, a lie can be big or small, it doesn’t matter – you do it intentionally, you commit fraud.
However, if you make a genuine mistake while reporting your finances that results in you paying low taxes, it is called negligence. You would think that negligence is not as bad as committing outright fraud, but it is not great either.
According to IRS tax reports, about 17% of taxpayers somehow fail to comply with the tax code, however, less than 1% of taxpayers face conviction.
Whether you do it intentionally or unintentionally, you can face problems in the future. So, you can’t risk it. Below are 5 ways that you can commit tax fraud accidentally.
1. Not reporting full income
A common mistake that taxpayers make while filing the tax is not reporting their full income. Sure, they do report every penny of the paycheck they received from their 9 to 5 job, but what about that side-hustle?
If you have made a couple of hundred extra bucks through your nighttime freelancing or through tips, don’t “forget” to include that in your tax report, otherwise you could be convicted.
If a business pays someone more than $600 in a year, IRS requires them to send a form 1099. However, whether you never received the form or you earned way less than $600 through your side business, you have to report that amount regardless.
And that includes every other way the income is generated, including investment returns, account interest, rental income, a crazy night at poker, and everything.
The IRS probably would not even know about how much money you earned through other sources, but if they did get to know about it, you will be liable to pay hefty fines and penalties.
2. Stretching truth on business’s expanse
If you are not lying and just “stretching the truth” a little bit, it’s still as bad as lying in the eyes of the IRS. And when that stretching of the truth is done on your business’s expanse, it gets worse.
A common example of this is when people show their personal assets as business assets to evade personal taxes. This could include deducting the complete cost of your car when it was used for your business only partially.
Similarly, reporting your personal expenses and business expenses, like telephone or entertainment, is also not good.
Where businesspeople do have certain benefits on their taxes, writing off their taxes as business taxes can become a problem for them. If you have got a car, a utility, or a property that does get used for business and for personal, the correct way is to calculate the time it is used in business, and then subtract that percentage from your tax return.
3. Overvaluing donations
According to new tax laws in the US, a lot of deductions were eliminated. However, the one that taxpayers can still deduct is charitable donations.
When taxpayers write off this deduction, they tend to exaggerate the amount – well, of course, you want your tax to be as low as possible. But keep in mind, if you exaggerate the write-off, it can come to haunt you as a tax fraud charge.
A charitable non-cash donation can be hard to place value on, but it is very easy to exaggerate its value. For instance, if you donate clothes to an organization, like Salvation Army, they will give you a receipt that contains the list of all the items you donated. However, a thrift store doesn’t give you an estimation of how much your clothes actually cost.
That gives you a free hand to estimate the amount yourself, and that’s where people make the mistake of writing off too much amount. In fairness, you should write off the exact amount that you, as a reasonable person, can pay for clothes in such condition – or anything for that matter.
4. Other deductions
Apart from charitable non-cash donations, there are other items that taxpayers can still deduct. However, it can be tempting to inflate the deduction and write off more amount than the actual. It can be medical expenses, education expenses, or miscellaneous deductions.
Since there are a lot of tax cuts, it is not very common for people to deduce the exaggerated amount. However, if someone is able to deduce a certain expense, it is recommended that they don’t exaggerate it while writing off, otherwise, things can get messy in the future.
5. Not filing your tax return
There are people who step above the fudging numbers and stretching truths and simply don’t file the tax returns at all.
If you did it intentionally (knowingly did not file your tax returns), it is a criminal offense and you could be convicted with severe consequences. However, even if was your negligence, there is no telling that you won’t be convicted because it will only be your word that you “forgot” to file the tax.
So, it is better to be safe than sorry. File your taxes before your tax returns deadline to pass.
What if you accidentally commit fraud?
If you didn’t file your taxes or are just remembering now that the numbers in your file weren’t accurate, there is a risk that you can face conviction, depending on what exactly you did.
However, if you want to be in safe hands and not wait for your demise, it is better to get a tax fraud lawyer to teach you how things at IRS works and what are your options.
It is better to have someone by your side, defending you, instead of facing all the allegations and potential charges alone.
