Everyone knows that taxes can be complicated. There is always a possibility of mistakes, whether you make them knowingly or unintentionally. Moreover, you may be tempted to manipulate the numbers in your favor just to lower your liability. However, something that is just a little white lie for you may count as a fraud for the IRS. Essentially, fraud occurs when an individual intentionally attempts an evasion of the tax code. Even if you make a genuine mistake, it is considered negligence but doesn’t make a good impression on the tax authorities. For this reason, you must try your best to steer clear of unintentional mistakes on your returns, besides making sure that you never get into a fraud case. Here are some ways you may be doing it accidentally.
Failing to report all your income
As an honest taxpayer, it is mandatory to report every single penny of your earnings in your return. Surely, you may have everything in the return, but what if you miss a few hundred dollars that you make from freelancing. Making extra money from a side gig is a great thing but not reporting it is a common mistake. You may still get caught because businesses have to send a form 1099 to the IRS when they make payments exceeding $600 during the year to an individual. Even if your freelancing income is below this amount, you must still report it. Besides income from side gigs, this rule also applies to earnings from investment, bank account interest, gambling winnings, and rental property. There is a chance of the IRS not knowing about this extra, but there can be hefty penalties if you are caught at any point in time.
Stretching your business expenses
Not only individual taxpayers but businesses too can get into a fix with unintentional tax frauds. Business expenses are an area where they are likely stretch the truth without any intention of an explicit fraud. For example, they may deduct the entire cost of a vehicle, even while using it only partially for business purposes. Similarly, you go wrong by reporting your personal expenses as business expenses. If there are certain expenses for things you use personally and for business, such as your car, cell phone or utilities, you must write these off judiciously. For this purpose, you need to consider a percentage of the total time the expense is used for business and only deduct that on the return.
Overvaluing cash donations
Taxpayers can legitimately claim a deduction for charitable donations, but things can get tricky with their valuation. There is always a tendency to exaggerate and this can account for a fraud, regardless of the fact that it is not done with a wrongful intention. If you see these donations as a blank check to claim an unprecedented amount in deduction, you will surely need to hire a tax fraud attorney to bail you out of trouble. After all, you cannot expect the IRS to believe that a box full of old clothes was worth hundreds of dollars. So it is vital, to be honest with the estimation of your donations. Overvaluing them will just cause major problems with the authorities.
Fudging other deductions
Apart from charitable donations, some other tax deductions can also get you implicated in an accidental fraud case. These include work-related education expenses, medical expenses, and other miscellaneous deductions. You can claim them if you qualify to itemize taxes rather than taking the standard deduction. Though these mistakes are less common, people still make them. For this reason, you need to be extra careful when it comes to verifying the legitimacy of the deductions you are allowed to make in your return.
Failing to file tax returns
Though it is hard to forget the tax deadline, people still end up doing so for one reason or the other. And this will be unintentional most of the time, like when someone gets seriously sick or injured in an accident or if they are going through something as painful as a divorce or closure of the business. In any case, a missed deadline can account for a tax fraud, so you must make sure that you never miss it. You can seek an extension to save yourself from the penalty.
Even unintentional errors with your taxes are subject to punishment by the IRS. Every taxpayer, therefore, should steer clear of intentional and accidental mistakes because tax frauds are tough to deal with. Only a seasoned attorney who deals in fraud cases can rescue you in such a situation.