White Lies

I am very sure all of us have told a white lie or two in our life. You haven’t? If that’s the case, you’re better than a bible character named Abraham who once told a white lie when facing a life or death decision. Webster defines a white lie as a lie about a small or unimportant matter. Well we’re about to enter a season of white lies as most Americans will begin filing their income tax returns this month. While filing your taxes and telling a white lie may not result in jail time, it may get you audited. Here are a few tax white lie areas which may get you audited.

Unreported Income

The Internal Revenue Service (IRS) will get copies of all your W—2s and 1099s. But if you provide services to a business or someone and they fail to provide you with a 1099 should you report that income or leave it off your return? Most likely if they did not provide you with a 1099, the documents have not been reported to the IRS and they may never know you received this money. Seems like a white lie moment.

Charitable Contributions

If your charitable contributions seem disproportionately large compared to your income an audit may be the result. You might decide not to get your donated property appraised thus over valuing your donation, or you may fail to file IRS Form 8283 for non-cash donations over $500.00. I’m not suggesting you should not give, but be sure to have your documentation available if necessary. The IRS knows on average how much people in your income tax bracket deduct as charitable contributions.

Gambling Losses

Whether you play the lottery regularly or occasionally when the jackpot raises to seven figures you can bet on the IRS wanting their cut. The rules allow you to write off gambling losses even if you play the numbers occasionally. However, you may deduct your losses to the extent you have gambling winnings, and recreational players must also itemize. What triggers the audit is that individuals report gambling losses and claim deductions without reporting any winnings. Seems like a white lie moment.

Home Office Deduction

With Covid-19 and most people working from home the temptation is to deduct use of your home office as an expense. But the 2017 tax reform laws have repealed employees’ ability to deduct home office use expenses. The deduction still exists for independent contractors and those who are self-employed, but not for employees. Don’t try this at home!

Running Your Business

If you are running your own business and filing a Schedule C, you are probably a repository for IRS agents and audits. The IRS knows Schedule C provides individuals with an abundance of tax deductions and great opportunities for creativity.

If your business is cash incentive driven, such as taxis, car wash, bars, hair salons, restaurants and the like, your chances of being audited are elevated. The IRS knows that in these areas you will probably understate your income and overstate your expenses. Telling a white lie in this area could result in paying more interest and penalties as punishment.

Let’s end where we began. I told you in the beginning about Abraham and that he told a white lie. Well, that was a white lie since his name at the time was Abram and it was his wife and not him who actually told the white lie. But that incident actually exposes another tax dogma. The story exposed a tax theology of a white lie within a white lie. Sounds familiar? Hmmm! While you may not tell a white lie on your taxes, you might get your tax preparer, accountant or lawyer to fudge the numbers and tell a white lie on your behalf. Just like Abram asked his wife Sarai to do for him- a white lie within a white lie. Exit question! Is it a white lie if you never get audited or go to jail-or only if you do?

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