When filing your taxes, you can make mistakes that can lead to serious tax problems. Check out these mistakes here, so that you avoid them.
If you clear your tax bill on time, the tax authorities will have no issue with you. Paying taxes is a responsibility and adhering to the tax rules and regulations is a good thing to do. However, when filing your taxes, you can make a mistake(s); either knowingly or unknowingly. The mistakes can be costly and land you in to serious tax problems with the tax authorities. Here are the 4 mistakes you need know about and how to avoid them.
1# Tax evasion
Many people confuse tax avoidance and tax evasion. Tax avoidance is legal and involves keeping your taxes as low as possible. Tax avoidance involves taking advantage of tax credits and deductions you qualify for, to bring your tax bill down. On the other hand, tax evasion is a purposeful illegal attempt to evade tax payment. In the US, tax evasion leads to loss of approximately $458 billion per year on the federal level. As a result, when caught and convicted, you can pay heavy fines and even end up in jail. Therefore, pay your taxes in full on time.
2# Under-reporting business income
Many tax payers always use this tactic to pay less tax. The more income you report; the more taxes you pay. For that reason, some tax payers report less income so that they can pay less taxes. But in today’s digital age, it is a bit hard to under-report your income. However, when many payments are paid in cash, companies can work out something to keep the income down. When you under-report your business income, the IRS or any other tax authority can initiate a tax audit, and you can easily be caught and charged. Therefore, accurately report your income.
3# Over-reporting business expenses
As a business owner, come tax season you must report your business expenses. You can decide to over-report your expenses when filing your returns to ensure you offset your business income that will be subjected to taxation. If you report too many business expenses, it could raise red flags. To avoid that, report genuine business expenses when filing your tax returns.
4# Failing to report sales and employee taxes
If you pay your employees off-the-book or under-the table, you are making a big mistake. The IRS can follow the employees and they can reveal their source of income. You can end up in trouble. Also, when you sell items online, you have to report your sales taxes to be in good terms with the tax authorities. Therefore, do the right thing; report sales as well as employee taxes when filing your taxes.
Can I go to jail for doing my taxes wrong?
When you make an honest mistake when preparing and filing your taxes, you are likely not to end in prison. However, when you make a mistake willingly like under-reporting your business income or completely avoiding to pay your taxes, the tax authority can file charges against you, and you can land in prison at the end.
What happens if you get caught not paying tax?
If the IRS finds that you have been evading paying taxes, they can file criminal charges against you. If found guilty, you face a penalty of as high as five years and a heavy fine. However, the IRS must file the charges within 6 years from the date the unfiled tax returns were due.
To avoid tax problems with the IRS or any other tax authority, you must avoid the above mistakes. Just file your taxes on time, avoid over-reporting your business expenses and most importantly, report your employees and sales taxes. That way, you will not pay heavy fines or have any issue with the tax authorities.