I think we can all agree that we hate filing taxes, but most of us at least try to do them correctly. We just want to collect our refunds and forget about the IRS as best we can until next year.
But not everyone feels that way. Roughly 10% of Americans think it’s OK to cheat a little here and there on income taxes, according to the IRS. And another 6% are really taking a gamble by cheating as much as possible. But that’s a really bad idea. Here’s why.
What happens if you cheat on your taxes?
You might already know that if your tax return raises any eyebrows with the IRS, you’re going to get audited — but that’s just step one. During an audit, an IRS agent will contact you by mail or visit you in person to go over every mind-numbingly dull financial detail of your year.
You’ll have to prove every penny of income you claim to have made and every tax break you say you’ve qualified for. Fail to do so and it won’t count. Even if it was a legitimate deduction, you need the paper trail to back it up.
The best-case scenario is you just do your taxes a second time around and the auditor doesn’t make any changes to your tax liability. But if you’ve cheated, especially to a notable degree, you’ll probably find yourself owing a lot more in taxes. You can appeal the auditor’s decision if you don’t agree, but that doesn’t mean you’ll get out of paying the bill.
In addition to the extra taxes, you’ll also owe penalties for late tax filing. This is 0.5% of the unpaid amount per month for each month your taxes remain unpaid. It’s capped at 25% of your unpaid taxes.
But wait, it can get worse. If the IRS believes you were intentionally trying to cheat on your return, it can charge you with tax fraud. The civil tax fraud penalty is 75% of the tax owed. For example, if you failed to pay $10,000 that you owed the IRS, you’d now owe that $10,000, plus late payment penalties, plus a $7,500 civil tax fraud penalty.
Tax cheaters can face criminal tax evasion charges as well, which could result in up to five years in prison. Bottom line: Just don’t do it.
How can you avoid a tax audit?
Tax audits can be scary, but it’s important to put them in context. They’re pretty rare — just 0.49% of all individual income tax returns between 2012 and 2020 were audited — and the worst consequences are saved for those who intentionally cheat the IRS out of large sums of money. You won’t have to worry about them if you make a simple mistake on your return.
But audits still aren’t fun, so it’s important to file your tax returns to the best of your ability the first time. That means making sure you have all the documents you need beforehand and not claiming any tax breaks you cannot prove you qualify for. Be sure not to throw these documents away after filing your returns either. Keep them for at least three years.
If you’re confused about some aspect of your taxes, get help from a knowledgeable tax professional. Don’t guess. You could hire someone in your local area to file your return for you. Just be sure to look into their credentials to make sure they’re a legitimate tax preparer. Identity thieves sometimes like to pose as tax preparers so they can steal your refund.
Do-it-yourselfers might want to check out tax-filing software that enables them to speak with a live person if they have questions about their return. You might also want to check into the help resources available before you begin. This might make the tax-filing process take a little bit longer, but it’s worth it if you can avoid hours crunching numbers with an IRS agent at your side.
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