Claiming tax deductions is one of the methods used by businesses and individuals to reduce the taxes they owe. As a form of tax incentive, your tax deductions can include expenses and other income-related costs.
Making false deductions, whether deliberate or not, can lead to penalties such as fines, if discovered by the IRS. A better understanding of penalties for false tax deductions can help you avoid them and file your taxes correctly.
How can you protect yourself from false deductions? Learn more about the penalties for false tax deductions in the article below.
What are tax deductions?
Tax deductions are deductions you make to your tax return that will help you save on the total amount of tax you pay. They’re also known as tax write-offs which refer to expenses and tax credits that you can deduct from your overall earned income. This makes them very useful when filing your return, as deductions could help you save money.
With millions of people filing tax returns each year, it isn’t feasible for the IRS to check every single return for inaccuracies. For this reason, many people try their luck with false claims, taking advantage of the system. However, if the IRS decides to investigate you, there could be some serious consequences.
What are the penalties for false tax deductions?
While there are some people who make deliberate false tax deductions, the majority of false deductions are actually honest mistakes. If you have genuinely made a mistake on your taxes, the IRS will be understanding. For those who have been found to mislead on their deductions deliberately, they will issue penalties accordingly.
The main financial penalty for false tax deductions is a 20% increase in the tax owed. This could be very costly depending on the amount of your tax bill.
More seriously, false deductions can also lead to criminal charges, as they could be considered a form of tax evasion. This could include a prison sentence of up to 5 years.
Even if you haven’t deliberately made false deductions, you could be considered negligent by the IRS, which is something that could lead to a penalty, such as a fine. Being honest, detailed and thorough with your tax return will help you avoid the risk of making a false deduction, helping you avoid any potential penalties or stress.
Filing tax deductions the right way
Keeping accurate records and retaining all of your receipts can help you file your taxes correctly. Tax deductions are there to help you reduce your taxable income, and are incredibly useful if you file them correctly.
Many people deal with their taxes and expenses at the end of the year, facing a mad scramble to get all the information in place. This could lead to mistakes, and could mean that you miss out on some deductions you could be owed.
Regular record-keeping and monitoring of your accounts and expenses can help you stay on track, ensuring you have all the evidence you need to support any tax deduction claims. You need to hold onto these records
It’s also your responsibility to make sure you’re aware of your responsibilities and obligations for filing taxes. The USAGov website has all the information and advice you need to help you file your taxes correctly and on time. If you follow the rules, you can file your taxes with confidence.
Get the help you need to avoid tax stress
Even with all the information that’s out there, filing your taxes can still be confusing and complicated. If you’re a small business owner or an individual filing taxes, you may find that you lack the time and information to complete your tax return correctly – something which could lead to mistakes.
You don’t have to handle your taxes on your own. Tax consultants can help you deal with any allegations of false deductions, giving you the advice and support you need to avoid a 20% penalty and increases to the amount of tax you owe. You can also benefit from accounting services and support to ensure your taxes are always filed correctly.
Get the help you need to avoid penalties for false deductions on your taxes. Get in touch with Anthem Tax Services today at 888-548-0478 for professional and reliable support for all of your tax affairs.