I know that this topic has been around the block before, but I think that most people only get part of the story. Our first brush with cheating was probably in middle school. Someone we knew cheated on a test and got away with it. We may have tried it ourselves. But this was kidstuff.
Now you are an adult. You think that if you cheat on your taxes no one is going to get hurt. I mean, everybody does it, right? I have seen a number of scenarios, when the cheater faced the unexpected consequences of cheating on their taxes.
The first thing that comes to mind with most people, is being on the wrong end of an IRS audit. Depending upon the magnitude of the cheating, you are faced with taxes (that you should have originally paid), interest and penalties. Penalties can be of different levels; underpayment penalties (minor), gross understatement (up to 50% of tax) (mid-grade) or JAIL (go directly to jail, do not pass go or collect $200). But have you forgotten another cost? The cost of representation by a CPA or Attorney. This cost can start at the point you are first made aware of the audit or at a later point when you realize you are in BIG trouble. Unfortunately, if you have dug yourself a deep hole, we professionals can only help to a certain extent. Professional representation is necessary and expensive. You may also lose pay because we professionals need to know what you did so we can help you. And we mostly work at the same time as you. So now that $500 in taxes that you thought you saved by cheating is costing you $2,000, or more.
Want to buy a house? Refinance a mortgage? The income you show on your individual income tax return is the amount of money that you make. You signed it under penalties of perjury so it has to be the truth, that’s what the lenders think. That money you made under the table, you don’t need to report that, do you? Actually, yes you do and the lenders will not take your word for it. They don’t care that you made extra money that would enable you to afford the payments, because … you signed your return under penalties of perjury! So now your cheating has potentially cost you a home.
Next, the unthinkable happens, you are injured in a severe car accident and you can’t work. If you are fortunate enough to have disability insurance, guess what? They want to know how much you make. And again, they go back to the tax return. Need to sue! Again, back to the return signed under penalties of perjury. Lost earnings are only as good as the last tax return. So if your return shows that your net profit on your business was $12,000 for the year, that is all you will get for lost earnings. Can you live on what you reported?
And finally, Social Security and how you will live your golden years. Do you want to pay for the remainder of your life for the cheating you did all of your working years? I knew someone who has not filed a return for more than 10 years. I can tell you that he was not socking away that money for retirement. So what will happen to him…he will get so little in Social Security, that he will be homeless.
So I ask you – is it worth it?