7 risks to commit tax fraud without even knowing it - ForumDaily
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7 risks of tax fraud without even knowing it

Even unintentional tax evasion can turn into big trouble, writes GOBankingRates.

Photo: Shutterstock

Not every scammer is a shady character with dangerous intentions. Anyone can accidentally commit tax fraud or unintentional tax evasion. Such personal failures are usually the result of negligence rather than malice, but either way they will attract the attention of the IRS. The agency is serious about nipping fraud in the bud, so you should check and double-check your return before filing your taxes. Get the deductions and credits you're entitled to, but make sure you do it legally.

What is tax fraud?

The IRS defines tax fraud as "a deliberate violation by the taxpayer for the specific purpose of tax evasion, which he must pay."

What is considered tax evasion?

Tax evasion is a category of tax fraud. The IRS defines tax evasion as “some active act of evading, evading, or paying a tax.” Activities that the IRS considers evasion include hiding assets, underreporting or failing to report income, and improperly obtaining credits or benefits.

How can I accidentally commit tax fraud

1. Submit a declaration with incomplete or incorrect information

It is very important to file complete and accurate tax returns. For example, if you paid thousands of dollars to attend college this year, you can get a tax credit for education to reduce taxes. But don't forget to turn it on Form 8863 - for educational loans - when filing your tax return. If you forget to include the correct forms or vital information such as your Social Security number, or enter it incorrectly, this could be a factor that results in an audit.

Avoiding this: Professional tax preparers or tax preparation software can help prevent the filing of inaccurate or incomplete returns. Some tax programs offer built-in electronic registration, which does not allow you to submit forms if they do not include all the necessary data.

2. It is wrong to get a tax credit on earned income

Applying for an EITC Tax Credit when you are not eligible for it is the main reason for checking the IRS. The loan is intended to compensate for the tax burden on social security for low-income people. Taxpayers who have the right to this can get a loan of up to $ 6660, but they must meet certain requirements. For 2020, the EITC income cap ranges from $ 15 to $ 820, depending on marital status and the number of children eligible for the loan.

How to avoid this: do not apply to the EITC if your investment income exceeds $ 3. Child support, alimony, social security benefits and unemployment benefits are not eligible for income. Your right may change from year to year, so read the requirements carefully each tax season.

3. Abuse tax havens

Often, accountants and welfare planners tempt taxpayers with vague or misleading "tax havens" or offer insurance that is at odds with your true financial needs, duplicate your existing insurance coverage, or provide coverage for completely implausible events. Your Indiana hairdresser will probably not be attacked by tigers, so do not use this excuse as a tax haven.

“These types of scams can end up costing taxpayers more in penalties, tax refunds and interest than they saved,” said former IRS Commissioner John Koskinen.

How to avoid it: If you find yourself in a tax shelter, seek an independent opinion from a tax expert.

On the subject: The Devil's Dozen: IRS Recommendations for Protection Against 12 Tax Fraud Schemes

4. Report improper tax deductions

You can deduct the necessary business expenses if you are a small business owner or self-employed. Make sure the costs are really necessary. If you think it is wise to take your family with you on a business trip, just to deduct tax holidays as business expenses, think again.

Some misused deductions—for example, writing off products you mistakenly thought were purchased for customers or employees—are simple errors. But knowingly lying on your tax return to get more money creates problems.

How to avoid it: Preparing your return using special software prevents errors because it usually shows the deductions you are entitled to. Another good idea is to check out the IRS website, which offers tips on deducting business expenses and a complete rundown of what you can legally deduct. In key IRS documents such as publication 334, 535 и 538Acceptable selling expenses are described in detail and tax guidelines for small businesses are proposed.

5. To make excessive deductions

Your chances of getting checked are low. The IRS audited 2018 million tax returns in 1, representing less than 1% of all returns filed in calendar year 2017, the latest for which this information is available. But even though the chances of an audit are slim, inflated deductions are still illegal.

How to avoid this: do not distort the truth. If you think you are having trouble paying everything you owe at the same time, develop a payment plan or an installment plan with the IRS using the online payment tool or form 9456.

On the subject: Gambling losses, repairs, insurance: what can be deducted from taxes for 2019

6. Do not report all income

It's easy to not remember all of your tips, especially if you don't constantly track them. But don't get carried away—failure to report all of your income to the IRS could be considered tax fraud and tax evasion, or at least a failure to report.

How to avoid this: tip-tipped employees should record these amounts daily and use publication 531to report your income. In any case, do not fall prey to common misconceptions about hard-to-track income. Use the latest version publication 525to keep track of what the IRS considers taxable and non-taxable income.

7. Become a victim of declaration fraud

The 2017 IRS news release said it was important to “carefully select the tax preparer because you trust him with your personal financial information that needs to be protected.” Many US taxpayers use tax professionals to prepare returns. If you do this too, keep in mind that the drafters you rely on can trick you into requiring loans or deductions that you are not entitled to in order to increase your own fees.

How to avoid this: when choosing a tax assistant, always check his IRS tax ID and professional credentials through IRS Online Taxpayer Guide with credentials and selected qualifications.

Read also on ForumDaily:

4 legal tax loopholes to save thousands of dollars in 2020

4 US Social Security Traps and How to Avoid Them

What you need to know about tax categories in the USA in order not to pay too much

3 popular tax myths that can cost you money and nerves

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