Reporting incomplete income, filing wrong information on tax returns, or overstating expenses are part of the things labeled as tax fraud. You should know and pay attention to such actions that can land you in trouble with the IRS. Continue reading to discover mistakes that can lead to tax fraud.
Reporting Incomplete Income
It’s easier for you to report income from your job because of the W-2. But what about earnings that are not from your job? You could have earned some extra money through freelancing, gambling, investments, bank interests, and more. It is easy to commit an error of not reporting these added earnings, especially when you don’t keep track. Therefore, failure to report might be unintentional. But if the IRS catches you, it can consider it tax fraud and impose heavy penalties.
Forgetting Important Information Or Using Wrong Information When Filing Returns
Filing tax returns with incomplete or incorrect information is a common tax fraud and evasion method. Sometimes you might be eligible for a type of tax credit and be required to file a form. Forgetting to include such or other necessary forms when filing returns can attract the IRS’ attention. You should be wary of forgetting your Social Security Number or inputting it incorrectly because it could lead to a tax audit.
Overstating Expenses
Business owners are allowed certain benefits like being able to deduct important business expenses. Having this benefit is not an opportunity to report non-business expenses, especially personal expenses, as business expenses for deductions. You have to take extra care to separate personal from business expenses, especially when bills are combined or when you buy an asset for business and personal use. Find the percentage of that expense used for business purposes to make correct deductions.
Manipulating Tax Shelters
Tax shelters are amazing and help you save money, but beware of tax shelters that will eventually cause you to pay more or can be labeled as tax fraud. An example is an insurance that covers improbable accidents or duplicates coverage you already have. You might have been tricked into accepting such tax shelters, but the IRS will hold you responsible. If you are confused about tax shelters, consult a financial or tax expert.
Inflating Tax Deductions
If you are involved in charity donations, you are entitled to a tax deduction if you itemize your deductions. Other tax deductions are also available to you if you itemized your deductions. You might be tempted to inflate those deductions, especially since the probability of facing an IRS audit is slim. But it’s still illegal and can backfire. Please don’t risk it.
Do Tax Fraud And Tax Evasion Have The Same Meaning?
Tax fraud is when an individual willfully provides wrong information on tax returns to reduce liabilities. Examples include inflating tax deductions and deducting personal expenses as business expenses. On the other hand, tax evasion is under the umbrella of tax fraud, but it carries a heftier penalty. Tax evasion is an illegal attempt to avoid tax liability, e.g., falsifying receipts or claiming dependents that don’t exist.
What Are The Penalties For Tax Fraud?
You may be asked to pay 75% of the underpayment due to fraud in addition to your tax. You can also be fined up to $100,000 ($500,000 for corporations) and receive a sentence of up to three years in prison.
Conclusion
Avoid the troubles of tax fraud by knowing the actions that qualify as tax fraud before the law. An accidental act of tax fraud is still fraud. Equip yourself with the essential knowledge to avoid erring. If you find yourself confused, contact tax experts for advice and save yourself from sudden troubles.
Can you go to jail for filing the wrong taxes?
If you make a mistake or incorrectly file your returns, you will not go to jail. It’s better if you take action to correct your mistakes. But, if you intentionally file a wrong return, you might be taken to court for fraudulent actions and sentenced to prison.
Can I report suspected Accidentally Engaging tax fraud?
Yes, you can. You have to fill a Form 3949-A and mail it to the Internal Revenue Service using a specific address.
Does mistake or ignorance serve as a valid defense for Accidentally Engaging tax fraud?
No, it doesn’t. You are expected to know the law. Therefore, claiming a mistake or ignorance will not help you avoid penalties, especially if the IRS is convinced that it was intentional.
Does the IRS inform you of your mistakes?
Sometimes, the IRS does. You’ll probably receive a letter, and the IRS will make adjustments. But if the mistake is perceived to be serious, you might face an audit.
