5 Ways You are Cheating on Your Taxes
Tax cheats are rampant across the country. Unscrupulous tax professionals make the situation worse because they advise their clients to take shortcuts and cheat the IRS. This is a dangerous practice because many people are getting audited some years after filing fraudulent returns. Nevertheless, some taxpayers cheat on their taxes unknowingly. They do so by implementing tax strategies wrongly without the guidance of a tax professional. Such clients cheat on their taxes in a few ways that this article outlines. Read below to see if you haven’t unknowingly cheated on your taxes.
How are you cheating on your taxes?
The following are some ways you are robbing the government of its tax money.
- Not reporting all your taxable income
Taxable income entails all your income from wages, tips, profits from selling a property, business income, etc. Therefore, the IRS expects you to claim all such income on your tax return. This is how your tax owed is calculated. If you omit some forms of income and add all your deductibles, you may fraudulently end with no tax bill at all. Regarding tips, some employers don’t report the tips you earn. If you work for such an employer, ensure to report these tips yourself.
Many people go to work and have their managers deduct withholding tax from their salaries. But there are other forms of income you earn outside your job. It is your duty to ensure that all such income is claimed on your tax return. For example, if you go to work and run a side hustle where you sell electronics online, make sure that your income from this side hustle is reported on your tax return.
Therefore, omitting some of your income on your tax return is equivalent to filing a false tax return. And when you do this on purpose, it is tax fraud. Tax fraud or attempting to evade taxes by hiding some of your income illegally could lead to up to five years imprisonment and a $250,000 fine.
- Paying some of your employees under the table
If you pay employees under the table, you do so to avoid reporting and submitting withholding tax to the IRS. There are no obligations whatsoever – you just pay them, and no one asks any more questions. Many small businesses who do this underpay their employees and deduct the tax portion of the employee’s wages and keep it for themselves. In the end, both the employer and the employees break the law. The employer will not be paying payroll taxes, while employers will not report their income to the IRS.
When the IRS catches you doing this, as the employer, you will be liable to pay taxes that your employees were supposed to pay, plus penalties and interest. You could face more criminal charges that can bring your business down. As for the employees, they will also be guilty of tax evasion and taking part in criminal activity. They knew what was happening and saw no need to whistleblow to the IRS.
- Deducting reimbursed travel expenses for volunteer work
Parking fees, mileage, and other travel expenses for volunteer work are deductible. But if these expenses are reimbursed by the charity organization you volunteered at, you cannot deduct them. Therefore, if these expenses are reimbursed, and you try to deduct them again on your tax returns, you will be committing tax fraud.
If you use public transport, airfare, cabs, and train or bus fares are also treated as your travel expenses, you can deduct them if the charity does not reimburse them. More so, to deduct these, you must have moved away from your tax home.
- Overestimating your donations
Whenever you donate, make sure that you estimate the fair market value of the donated items. The IRS will not take it kindly if you overestimate the worth of your donated items. In many cases, it is best to slightly underestimate these items so that you do not raise IRS’ suspicions. For example, if you donate a pair of used shoes, it’s better to go online and find sites where they sell similar second had shoes. An example is eBay. Use a cross-section of prices thereon to estimate the value of your donated shoes. Once done, and find out the price to be $40, as an example, you can ensure your safety from assessments by estimating the value of the shoe on your return as $37, not the exact $40.
Once you get your estimated fair market value, get your item appraised and attach the appraisal document on your return. That’s how you deduct it. But people who cheat on their taxes can get fraudulent appraisal documents with inflated numbers. Do not do this because the IRS knows about these tricks and more about second-hand items’ prices.
- Not reporting gambling winnings
If your lottery ticket wins you hundreds of thousands of dollars, it would have earned you some income. And just like any other type of income, you must pay tax on your gambling winnings—failure to report these winnings in tax fraud. According to the IRS, gambling income includes winnings from lotteries, raffles, horse races, and casinos. It also includes cash winnings and the fair market value of prizes, such as cars and trips. So, if you win a holiday trip to the Bahamas, you must get the fair market value of that trip and pay tax on it.
Is anything of the above confusing you? If so, don’t hesitate to contact our office at (202)618-1297. We will help answer your questions.
Frequently Asked Questions
- How do you catch a tax cheat?
The IRS uses information returns to assess the accuracy of tax returns. For example, if you win the lottery, the lottery company will report that they paid you a certain amount when filing their own return. The information they report must match your tax return – where you pay tax on your gambling winnings. If you do not include this income, the IRS will want to know why. IRS has a matching program that does all this work.
- How do I manipulate my taxes?
You should not think of illegally manipulating taxes; that is punishable by law. If you want to pay less on taxes, find out how from registered tax professionals. You can also contact us to use legal tax strategies that can lower your tax bill.
- Do I need to keep receipts for taxes?
Yes, you should keep all receipts as part of tax documents. The IRS recommends keeping tax documents for at least 3 years. They help you in case you get audited in the future.
- Is it okay to cheat on your taxes?
It’s not OK to cheat on your taxes. Our government needs tax money to run the country – build public infrastructure such as roads and keep our courts functional so that criminals and other issues are solved to protect us.
- Does the IRS check every tax return?
Yes, the IRS checks every return. If any discrepancy is found, they will notify you through an email as they seek further clarifications from you.
- What are some examples of tax evasion?
Examples of tax evasion include falsifying tax records so that you reduce your tax bill or don’t pay at all, underreporting your income to avoid paying tax, and illegally assigning your income to someone else just to avoid paying tax on it.
