When filing your taxes each year, it is essential to make sure that you are honest about all of the deductions you claim.
The IRS has a penalty for taxpayers who falsely claim deductions, and this can include claiming false dependents on your return.
If the IRS catches you, you could face significant fines and penalties.
This article will discuss the IRS penalty for claiming false deductions in more detail. We will also provide some tips on how to avoid this penalty altogether.
IRS penalty for claiming dependent
If you knowingly claim a fraudulent dependent on your taxes, the IRS may impose penalties and request an audit.
Claiming false deductions like dependents is viewed as tax evasion and is, therefore, a felony with potentially harsh criminal repercussions.
However, the IRS will only consider charging a fraudulent dependent fraud if the taxpayer was willful—that you must be aware of your unlawful behavior to be accused.
Penalties for neglect
Without the desire, negligence is a factor. Even though it isn’t against the law, neglect still has penalties. Dependents may make you eligible for additional tax benefits in addition to the initial reduction.
Tax credits may be claimed for educational expenditures, medical expenses, and childcare—this is why false deductions for a dependent are so widespread.
If the IRS determines that you lied about a nonexistent dependent, you will be fined the total amount you avoided by doing so.
In addition to the overall amount, you will be charged a .5% late fee each month for the outstanding amount that has gone by since the tax was due.
IRS Consequences for False Deductions
We all make mistakes regarding our taxes; after all, we’re only human. However, there are significant repercussions in the instance of a taxpayer who has intentionally evaded taxes or violated laws.
Penalty for overstating deductions
What are the penalties for overstating deductions? The IRS will impose a 20% penalty on the amount you owe them to discourage people from manipulating the tax code.
For individuals, an underpayment is significant if it is more than 10% of the anticipated tax amount that a correct return would have reported. The IRS will consider what is owed to be significant if the amount reaches $5,000.
If you expect to take a significant deduction on your taxes, make sure you include the explanation and any supporting material on your form 8275.
If the IRS denies your claim, you may still avoid the 20% penalty and charge of fraudulent deductions by providing a reason and evidence.
Penalty for falsifying tax documents
The consequences for falsifying tax documents can include criminal prosecution, as well, for any of the following illegal actions:
- Tax Evasion
- Willful failure to file a return, supply information, or pay any tax due
- Fraud and false statements
- Preparing or filing a fraudulent return
- Identity theft
The IRS may impose late charges on you if you mention a false dependent, as well as civil fines for claiming fraudulent dependents.
If the IRS determines that you knowingly listed a false dependent, they may impose a civil penalty of 20% of your anticipated tax.
However, the IRS may assess a penalty of 75 percent to your apparent tax if it thinks you have committed fraud on your false deduction. It’s critical to note that the IRS would need to file criminal charges to impose a more severe civil penalty than 75 percent.
You could be sentenced to up to five years in prison and fined up to $250,000 if your crime is successfully prosecuted.
Can you go to jail for claiming a false dependent?
Because you are submitting your taxes under the threat of perjury, everything you state has to be accurate, or you risk being fined for perjury. It is a crime to mislead the IRS by claiming a false dependent.
Failing to be truthful about a fake dependent may lead to 3 years of jail time and fines up to $250,000.
How to Avoid Fines and Audits
The use of false tax deductions may result in penalties, fines, or even criminal charges. It’s always preferable to avoid claiming fraudulent deductions than to lie on your taxes and risk the severe consequences that may follow.
The easiest method to avoid paying fines for falsely claiming a dependant? Don’t lie on your taxes. If you’re not sure whether you qualify for any deductions, contact a tax attorney who will assist you.
Cost of IRS Audit Defense
Tax codes can be challenging to understand; don’t let your lack of expertise land you in hot water with the IRS. If the IRS audits you, the cost of defending your false deduction will almost certainly end up being more than what you would have initially saved on your taxes.
Based on an audit, expect to pay anything from $3,500 to $10,000 per tax year.
If you receive a letter from the IRS stating that you will be audited, you should contact a tax professional right away.
When the IRS sends a notice telling you that your return will be examined, it will include the areas of your return on which they intend to question you.
Make sure you gather all relevant information on the IRS’s stated topics.
How do I fight an IRS audit?:
- Hire a tax professional to assist you: While you can do it yourself, employing an expert who can get you through the process quickly and efficiently will be much easier.
- Go to the IRS: In almost every situation, it’s preferable to go through the IRS audit at their office rather than at your home or business.
- Don’t worry; less than 25% of those who get audits pay any additional taxes; don’t worry if you get an IRS audit letter.
- Appeal: If the report states that you must pay additional fees and disagree, appeal your case to the IRS or tax court.
Need help with an IRS Audit?
Audits may appear to be the end of the world, but they aren’t. You can handle an audit in a few weeks if you have enough documentation and the proper assistance from a tax professional.
If the IRS has charged you with making fraudulent deductions or declaring fictitious dependents, Call Now.
A competent representative is ready to assist you with any tax-related needs you may have.