The IRS estimates that tax evasion in the United States is between $400 billion and $600 billion. This means that people are either not reporting all of their income or taking deductions for expenses they don’t have. Unfortunately, tax law is so complex that you might be committing tax fraud without even knowing it. To ensure your return is accepted successfully, here are five common misconceptions that could result in tax fraud charges.
Not reporting emergency loans
Many people believe that tax fraud only occurs when someone intentionally misleads the government in order to avoid paying taxes. However, there are a number of ways that taxpayers can unintentionally commit tax fraud. For example, taking emergency online loans and not reporting them as income, failing to report all sources of income, or incorrectly claiming deductions or credits. While it is important to be honest when filing your taxes, it is also important to be aware of the potential for unintentional tax fraud. By understanding the rules and regulations surrounding taxes, you can help ensure that you are complying with the law and avoid any penalties or fines.
What should I do if I get caught committing tax fraud?
Many people believe that tax fraud only occurs when someone intentionally misleads the government in order to avoid paying taxes. However, there are a number of ways that taxpayers can unintentionally commit tax fraud. For example, taking emergency online loans and not reporting them as income, failing to report all sources of income, or incorrectly claiming deductions or credits. While it is important to be honest when filing your taxes, it is also important to be aware of the potential for unintentional tax fraud. By understanding the rules and regulations surrounding taxes, you can help ensure that you are complying with the law and avoid any penalties or fines.
Four common mistakes that could result in charges of tax fraud
1. Filing a return that’s full of errors
Minor errors like swapping the digits of a social security number or getting your employer’s EIN wrong might not seem like a big deal but they can cause big headaches later on. The largest issue is that small typos or swapped numbers might mean your tax return isn’t attributed to you and is instead linked to someone else, affecting both your reported taxes and theirs. Take the time to review your return before filing to ensure that you get the credit for your return and won’t need to go through the hassle of explaining yourself or filing an amended return with the IRS later.
2. Claiming the wrong deductions
You know how stressful it can be when you owe taxes, especially when money is tight. Many taxpayers will start looking for loopholes in the available deductions and tax credits so they can take advantage of them and reduce their Adjusted Gross Income (AGI). However, claiming the wrong deductions or tax credits can be a severe offense, possibly resulting in a felony charge of tax evasion. That said, if you feel you’re eligible and can show proof of it, then you should absolutely take any deduction you’re qualified to receive. Just don’t go overboard and try to game the system by taking advantage of gray areas in tax law.
3. Not reporting all of your income
The IRS expects you to report all income you receive in the year, not just from your regular job. Any gambling winnings, side hustle income, interest earned, and even off-the-books or illegal activity that results in earned income must be reported. Remember that Al Capone got taken down because of not correctly reporting his income; it’s that serious of an offense.
4. Using a bad tax filing service or professional
Unfortunately, too many people get caught using tax filing services or tax preparers that just aren’t good at what they’re supposed to do. Even if you’ve done everything right and your mistake is trusting the wrong service, you’ll be held liable for any unpaid taxes and penalties. To avoid this, look up their IRS Preparer Tax Identification Number and credentials on the IRS website. While credentialed professionals can still make mistakes, knowing that the IRS accredits your professional will give you more peace of mind than using a professional or service which isn’t registered.
The bottom line
If you are worried about your tax liability or are simply unsure about your tax-related payments, then you should contact a qualified professional to review your return before filing. Working with a financial professional will ensure that you are on the right path to a debt-free life and aren’t committing any unintentional acts of tax fraud that could cause severe damage to your finances.
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