Three Small Mistakes That Have Huge Tax Consequences

Most people only think about their taxes in the weeks leading up to April 15th, but they shouldn’t limit themselves to tax time! In May and June, you may be unpleasantly surprised to learn that there was an issue with your taxes, and you will be audited or asked to provide additional information. The worst-case scenario, however, is that you might be accused of tax evasion.

tax assessmentPlenty of professionals like David Stewart have dealt with tax evasion accusations and, as it turns out, many of them were practicing tax avoidance instead of evasion. Those sound really similar, but there is a major difference between them: intent. To try to make the two concepts easier to understand, we’ll go through some practices that the IRS would view as illegal.

Under reporting (or completely omitting) income

This is the most cut and dry practice of tax evasion, and it’s usually what springs to mind when people think of the crime. Some people work under the table and refuse to fill out W-9 forms and other proper paperwork to file their earnings. Some people may purposely state that they’ve earned far less money than they’ve actually gotten. Either way, always be honest on your taxes and make sure to report everything you earn.

Claiming personal expenses as business expenses

This can be tricky, because many expensive and important items like cars and computers could technically be purchased for both personal and work purposes. If you are unsure whether or not something could be written off as a business expense, it’s best to play it safe and only claim the things you’re 100% sure are used for your career.

Mislabeling transactions

Some people try to reduce or completely avoid income tax liability by labeling a business transaction as something it isn’t. Let’s say you’re the owner of a corporation, and you decide to label the payments that the corporation makes to stockholders as “interest” instead of “dividends” in order to claim less profit. To some people, that may seem like a great way to skirt tax laws, but it’s also a great way to get your business investigated by the IRS. Honestly claim every transaction your business or corporation makes throughout the year.

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