12 Aug Ways You Might Be Accidentally Committing Tax Fraud
In most cases, people commit tax fraud without even realizing it. Tax fraud can happen in two ways: one is when a person willfully attempts to evade the tax code, and the other is when someone makes a genuine mistake. The latter one is considered negligence, which is not as bad as committing flat-out fraud, but it’s not great, either.
The IRS has estimated that about 17% of taxpayers fail to comply with the tax code in some way, though less than 1% of taxpayers are actually convicted of a crime. The best thing to do is to make sure that such a mistake doesn’t appear on your tax return in the first place.
Here are some usual mistakes people make that you should stay clear of:
1. Not Reporting Your Income – All of It
Sure, you will report your earnings from the W-2 your job sends you. After all, the IRS also gets a copy. But what about the extra dollars you make on the side through freelancing or tips? Not reporting another source of income on the side that is not a wage is one of the most common mistakes taxpayers make.
This includes income from bank account interest, rental property, investments, gambling winnings, and more. There is a possibility the IRS won’t discover your extra earnings, but if you do get caught, you will have to pay some hefty penalties.
2. Exaggerating About Non-Cash Donations
Over the past couple of years, the new tax law has changed or eliminated numerous deductions, but one that’s still active and available to taxpayers is the charitable donation deduction. That’s a write-off that can be difficult to value but easy to exaggerate. It’s important to be honest in your estimation.
3. Taking Inflated Tax Deductions
While it’s understandable that you need to cut your taxes as much as possible, it’s also important not to make them up or over-inflate them. If you do so, you can be liable for extreme penalties that include a $5,000 fine, 20% of the disallowed amount, and 75% of the amount owed, as well as the full income tax owed.
4. Claiming the Wrong Deductions
Before you start deducting expenses, make sure it is necessary. This is especially important for self-employed or small businesses, who are allowed to deduct their expenses. If you get caught, you could be imprisoned for three years, with an additional fine of $100,000.
5. Improper Form
Double-checking your form before sending is advisable, as it can save you time, effort, and money. It happens more often than not that people pick the wrong 1040 form while in a rush, which then affects their entire tax return details.
6. Math Errors
Another common mistake that sounds naive but happens too often is a plain and simple miscalculation of deductions. That’s why it’s advisable to double-check every figure before committing it to a tax return. Adding instead of subtracting might be a silly mistake, but it can seriously change your actual liability.
Whether you intentionally or unintentionally falsify any information on your tax return, such mistakes can lead to expensive consequences. Rather than taking a chance with the accuracy of your tax return, take extra steps and contact the team of professionals at Golden Tax Relief.