The 5 Most Common Lies People Tell on Their Taxes, According to Accountants

Doing your own taxes can feel overwhelming and complicated. Not only do you need to gather all the documents and forms that are applicable to your income but you also need to make decisions around what tax credits and deductions to opt in for.

As you get closer to submitting your return, you might even start to wonder what else you can do to lower your tax bill so you don’t have to make a hefty payment when April rolls around. While most people don’t intentionally lie on their taxes, you should make sure you’re not accidentally misrepresenting the facts.

Even if you’re not tempted to hide parts of your income or claim false deductions, it’s worth double checking to make sure you’re not making one of these costly mistakes.

1. Listing false deductions

When you’re on the section of your tax return where you can start listing out deductions, certified public accountant Armine Alajian says that you shouldn’t give into any temptation to lie about expenses or contributions.

Alajian says that people commonly lie about deductions for charitable contributions, medical expenses, or business expenses to lower their taxable income, but it’s never a good idea.

“Tax laws regarding these deductions are subject to strict recordkeeping requirements. Individuals who claim them are more susceptible to an audit by the IRS,” says Alajian. “If you can’t back up your deductions as ‘ordinary and necessary’ for your line of work and with the receipts to prove them, you can find yourself facing significant fees.”

2. Claiming a false dependent

Another common lie that Alajian sees are people who claim false dependents, such as children who don’t live with them or aren’t their really their dependents.

“This can land you in hot water with the IRS,” she says.

Plus, Alajian shares that the person who you claim as a dependent can also face consequences, as their personal information is being used without their consent.

“The false dependent may not be aware of the claim and may face complications when filing their own tax return, as their personal information had been used by someone else,” she says.

This can result in significant fines, penalties, and interest charges on taxes owed. It can also sometimes result in criminal charges.

3. Underreporting income

Over the past few years, side businesses and multiple streams of income have become an attractive way for people to earn more money, especially during the pandemic. However, Alajian says a big mistake people make is that as they bring in the extra cash, they don’t set aside any of it for tax purposes, which can lead to a higher-than-usual bill come tax season.

“Because of this, many will purposely underreport income from these side businesses or freelance work,” she says.

If a taxpayer is caught doing this, it can result in fines, penalties, and interest charges on the amount of taxes owed.

Plus, since the tax laws for independent contractors and small business owners are complex, Alajian says it’s common for individuals to make mistakes when calculating and reporting their income and expenses.

“The IRS may be more likely to audit individuals in these categories to ensure that they are properly reporting their income and paying the appropriate amount of taxes,” she says.

4. Lying about the state you live in

If you’re someone who lives in different states throughout the year, certified public accountant Levon Galstyan says you have to be accurate about the location you claim residency in, even if it’s a state with higher taxes. He says that some individuals may falsely claim a different state as their residency to take advantage of lower tax rates or more favorable tax laws.

“Changing your state of residency for tax purposes is illegal and can result in fines and penalties,” says Galstyan.

5. Exaggerating home office expenses

Over the past few years, with more people working remotely, Galstyan says that more people have tried to take advantage of home office expense deductions and lied about these expenses to reduce their taxable income. Keep in mind that these deductions are only applicable if you’re self-employed — you can’t take them as a W-2 employee even if you work from home.

“This can include claiming expenses for a larger home office space than is used or claiming expenses for items that are not exclusively used for business purposes,” he says.

Even if it seems like a good idea, Galstyan says it’s never worth it to lie. You will have to pay interest and penalties on the amount of tax that should have been paid if you get caught.

Source: https://www.businessinsider.com/personal-finance/most-common-lies-people-make-taxes-2023-2