While paying taxes to the government is supposed to be seen as a patriotic deed, many people try to hold their money tight and not do so. This more often than not results in tax fraud or evasion, which would mean that they gatekeep their money instead of paying their dues. It is not uncommon for us to see millionaires and billionaires accused of tax evasion on the news, but have you ever considered that you could be committing tax fraud, even if you don’t know you were? There are multiple ways in which you could accidentally commit tax fraud. Some of them are not reporting the whole of your income, showing more donations than you made, if you twist your business expenses, you mess up your tax deductions or if you simply just forget to pay! It could be something as simple and minute as these reasons that could get you in jail with a tax evasion record. So, here’s more. Lets see about the Ways Accidentally Committing Tax Fraud.
Accidentally Committing Tax Fraud
There are many ways in which you could be making mistakes while filing your tax returns. Here are some of the common ways in which it could happen:
- Not reporting all of your earnings: The company that employs you send you the W2, which you use to file your taxes. You may also know that the IRS also receives a copy of the W2. But that’s your registered full-time job. What about the money you made while freelancing as a content writer? Or if you work a part-time job waiting tables, have you considered adding in the tips you make? Having a secondary source of income is not considered wage income. It is not uncommon for taxpayers to not report them because they are ignorant. These secondary sources can be interest on your bank deposits, investments that you made, rental income, gambling rewards and such. While there is a solid chance that the IRS may not know that you’ve got a second money-making avenue, it will be damaging if they ever do- you’ll find yourself paying much more in penalties than the actual taxes due.
- Overvaluing Cash Donations: There have been a lot of new amendments in current tax laws where a lot of deductions have now been deemed void, one interesting deduction is still available- charitable donations, made in kind. This is one thing that a lot of taxpayers seem to use as a way to escape paying taxes. Since it is hard to evaluate, say, a box of clothes or old toys, this is easy to exaggerate. While well-known charitable institutions like Goodwill or Salvation Army will produce a receipt with the value of the donations made, there are local thrift stores where you can donate and not get a receipt for the same. This is used as a way to claim higher donations than made or what is practical- there have been cases of people claiming to have donated clothes worth 500 USD or more! Unless you’re donating Gucci or Prada, that’s impossible.
- Exaggerating Business Expenses: This is a very common way for people to gain tax benefits. People choose to increase the value of their company car and the maintenance expenses or the accommodation that they get. Another common trick is to write off personal expenses as expenses undertaken for work, so deductions can be made on those too. While there are a lot of tax benefits available, it is not ethical to be writing off all your expenses. So, the right thing to do is to own up to it. If there are assets that are used for both personal and professional use, you’ll have to determine the percentage of that which is used for personal and professional use and use that to avail tax deductions.
- Forgetting to pay taxes: We have discussed ways that people make use of to avail tax benefits beyond what they are entitled to, but there are some just simply…forget! There are a few for whom tax due dates just never stay in their heads and they just forget. While you can still make the payment with a late fee, it is always better to have due dates at your fingertips and make payments well in advance. It is also noteworthy that it is only when you don’t do it unintentionally. Intentionally deflecting tax payments can put you behind bars.
So yes, there are multiple ways in which people commit tax fraud without even knowing that they’re doing it. In this case, what you can do to improve your situation is to quite simply maintain proper records, make use of the services of a tax professional so they can do the work for you and always be aware of the rules and regulations and make payments on time.