6 Tax Lies That Could Really Cost You
Tax Day is April 18 this year. Amidst all the stress of filing, you might wonder if it’s easier to cut a few corners. After all, with so many taxes being filed at the same time, is it really possible that something small would be caught? Are you going to be punished for a slight smudging of the truth?
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The truth is that the IRS has a sophisticated system in place that involves both automated and human examinations to check tax returns. If your return looks off or inaccurate, you’ll have to go through an audit, which is a very tedious process. Even if you don’t mean to lie on your tax return, you can easily make an error if you’re not careful. Here are some common lies and mistakes to avoid when you file this year so you don’t get in trouble with the IRS.
Misreporting Your Income
Even if you don’t report every cent you make, most likely, there is a record of every cent you earned. Just because you don’t report that a business paid you doesn’t mean that business will do the same. Often those who lie about how much income they made will get caught when the IRS compares an employee’s reported income with how much a business said it paid them. If there is a mismatch, you will receive a letter audit at the very least.
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Wrongfully Writing Off Costs as Business Expenses
Write-offs are seen as tax loopholes that can save you money. When reported correctly, the IRS doesn’t bat an eye. But, there are some situations that will cause the IRS to give your business expenses another look.
If the amount of business expenses you report is 20% or more above the average, you’ll most likely trigger an audit, so be careful what you report. Excessive business meal costs, writing off a vehicle or miles that aren’t strictly relating to a business vehicle and deducting any costs that pertain to a hobby rather than a business will definitely set off alarm bells for the IRS.
Not Accurately Reporting Money in Foreign Accounts
If you have foreign bank accounts, you’re not off the hook for reporting what it’s in them to the United States government. In past years, you simply had to check a box that you possessed a foreign bank account, but now the rules have changed. You now must say where your foreign accounts are, what institution they’re with and the amount that’s in them if it’s above $50,000.
However, even if you accurately report your funds in foreign accounts, it’s still likely you’ll be audited. There’s a common perception that those with foreign bank accounts are hiding something, so, unfortunately, even if your accounts are above board, they still might trigger an audit. Conversely, if you choose not to report them at all, you’ll be subject to high fees and penalties. It’s best (and often cheaper) to report them and go through an audit, rather than paying the price for not disclosing them.
Wrongfully Claiming Dependents
Say you’re divorced and have a child. You don’t discuss with your ex-partner who will be claiming your child as a dependent, and you both end up claiming the child come tax time. This can land you in hot water with the IRS. In this case, generally only one parent (the primary custodial parent) can claim the child on their taxes unless an exemption is filed. If there is any “double claiming,” or if you claim a dependent who files their taxes as an individual, your tax return will raise red flags with the IRS.
Deducting Charitable Contributions That Don’t Qualify
Though donations to many charities are tax-deductible, not every contribution you make to an organization counts. In order to qualify as a charitable organization with the IRS, there are specific guidelines. Organizations that qualify include:
- Federal, state or local governments (if contribution is for public purposes)
- Churches, synagogues, temples, mosques or other religious organizations
- Nonprofit schools and hospitals
- The Salvation Army, American Red Cross and other documented charity organizations
Ones that don’t qualify include the following:
- Civic leagues
- Social and sports clubs
- Homeowners associations
- Political groups or candidates
If you donate to a latter group and deduct the contribution, your return might be flagged with the IRS for improperly reporting a charitable deduction.
Deducting All Medical Expenses
You can deduct medical expenses on your taxes, but only if it falls under a specific guideline: it must be qualified unreimbursed medical care that exceeds 7.5% of your adjusted gross income. Qualifying expenses include medical insurance premiums, long-term care service, ambulance services, eyeglasses and contact lenses, some operations and surgeries, nicotine gum and patches.
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