During tax season, the IRS is always prepared to catch taxpayers in their lies and take note of them for the following years. Although chances of being audited are rare, it can still happen and there will be consequences if a taxpayer has been caught being dishonest. This article will discuss 6 common lies told by taxpayers on income tax returns and how the IRS finds out.
1. Falsely claiming a dependent
Claiming a false dependent is one of the common lies told by taxpayers, which is a serious offense that can result in harsh penalties. The IRS takes this issue very seriously and will investigate any suspicious claims. It’s important to understand the rules for claiming dependents, so you don’t put yourself in this type of situation.
To be eligible as a dependent, the person must meet certain criteria:
Be related to you.
Live with you for at least half the year.
Not have earned more than the standard deduction amount.
Additionally, they must be claimed as a dependent on only one person’s tax return.
If you are unsure whether someone qualifies as a dependent, it is best to consult a tax professional before filing your taxes.
2. Falsely claiming a home office expense
Taxpayers should be aware that the IRS closely monitors home office deductions and any suspicious claims could trigger an audit. For those who do have a legitimate home office, it’s important to know and follow the rules when filing taxes.
First, the space must be exclusively used for business purposes, such as running a business or storing inventory.
Second, you must use it regularly, meaning that it must be used more often than not.
Lastly, the space must be used only for business activities and cannot be used for personal activities.
Honesty is always the best policy when filing taxes, and taxpayers should never lie or exaggerate expenses.
3. False charitable contributions
False charitable contributions occur when taxpayers claim expenses that don’t qualify as charitable deductions to lower their taxable income. Some instances of this could involve giving away heavily worn or used clothing or household belongings, overestimating the value of non-cash donations, and declaring donations to organizations that do not meet the eligibility criteria.
In order to avoid any inadvertent or deliberate misrepresentation of your charitable gift and the resulting penalties, it is essential to have a thorough comprehension of the guidelines and statutes governing donations.
Charitable contributions must be made to qualified organizations and must be documented with a receipt. When in doubt, the IRS offers a searchable database of qualified organizations and outlines the general rules for making charitable contributions.
4. Underreporting income
Underreporting income is a serious lie that can have dire consequences if not addressed properly. There are various methods to achieve this, such as failing to report cash transactions, reducing the worth of goods or services, or augmenting deductions and credits.
Even though taxpayers might think that underreporting their income is a smart way to save money on taxes, it could cause serious issues when the time comes to pay taxes.
The IRS has sophisticated methods for detecting underreporting, and those who are caught can face penalties, such as fines and even possible criminal prosecution.
5. Falsely claiming residency in another state
Another common lie told by taxpayers is claiming a state they don’t live in, which is a form of tax fraud.
Claiming residency in a state that has a lower income tax rate than one’s true state of residence is a way that taxpayers attempt to lower their tax liability.
Taxpayers need to provide solid evidence demonstrating that they have permanently relocated to another state and completely disassociated themselves from their former state if they want to accurately assert residency in their new state.
Failing to do so can lead to serious consequences, such as being liable for back taxes, interest, and penalties. It is crucial for taxpayers to accurately declare their residence on tax returns and file taxes in the appropriate state in order to prevent any penalties.
6. Marital status dishonesty
Taxpayers who decide to lie about their marital status when filing taxes are making a big mistake. Many people provide inaccurate information about their marital status when filing taxes to receive a bigger refund.
For instance, couples who file jointly but have two children often opt to claim Head of Household by splitting the children, despite having already shared their marriage on social media.
Reporting a head of household status when both spouses are married is also a form of dishonesty that can result in underreporting of income. Be honest and responsible when filing your taxes and avoid any potential trouble with the government.
What should I do if I mistakenly lied on my tax return?
If you have accidentally made a mistake on your tax return, the most important thing to do is to take action immediately. The longer you wait to address the issue, the greater the potential consequences could be.
Like stated before, depending on your particular situation, you may need to file an amended return or submit additional documentation.
These are just a few of the common types of lies that taxpayers tell on their income tax returns. As stated previously, you should avoid them no matter how appealing they seem. Taxpayers who are honest will have no worries and can wait patiently on their tax refund.