Is It Ever Okay to Cheat on Your Taxes?

Looking to bend the rules? Don't even think about it.

Maurie Backman
Maurie Backman
Apr 7, 2018 at 6:18PM
Investment Planning

With the tax filing deadline right around the corner, now's the time to get moving on your return if you haven't done so already. And part of that means figuring your various deductions and credits so that you shield as much of your income as possible from the IRS.

But there's a difference between being strategic on your taxes and being downright dishonest. And the latter could really get you into trouble.

Thankfully, most Americans know better than to cheat on their taxes. But some workers don't agree. The IRS reports that 9% of filers think it's acceptable to cheat on taxes a little bit here and there, while 3% think it's best to cheat as much as possible. And those are the folks who are likely to get into trouble.

Tax forms on a wooden surface

Image source: Getty Images.

Tax evasion versus tax avoidance

Let's be clear: There's nothing wrong with taking steps to lower your taxes, whether it be in the form of capitalizing on deductions, strategically writing off business expenses to reduce your taxable income, or holding investments for a lengthier period of time to minimize capital gains. It's a concept known as tax avoidance, and it's perfectly legal provided you don't bend the rules. This means that if you have, say, $1,000 worth of charitable donations for a given tax year, there's absolutely no problem with deducting that sum. It's when you lie and attempt to claim a $2,000 deduction when you know you're only entitled to half that amount that you cross the line into tax evasion.

Tax evasion is the willing act of concealing income or underpaying taxes, and it's punishable by law. Specifically, if caught and convicted, you could face up to five years in prison and up to $250,000 in fines. Of course, that assumes you're tried at the criminal level, but even if you're found guilty at the civil level, you could face a penalty of up to 75% of the taxes you underpaid on top of being liable for that underlying tax bill itself.

Furthermore, it doesn't matter whether you're guilty of hiding $5,000 versus $500,000. The former is very much a crime, and one not worth attempting.

Honesty is really the best policy

If you're looking for a way to lower your taxes, you're best off playing by the rules. There are a host of deductions that filers who itemize can claim, so figure out how much you spent on things like mortgage interest, charity, and medical expenses, and see what that does for your tax bill. Similarly, look into the numerous credits available to taxpayers today. If you're a lower earner, you might get to claim the Earned Income Tax Credit, which could put several thousand dollars back in your pocket. If you have children, you might be eligible for the Child Tax Credit or Child and Dependent Care Credit. And if you're a student, you might save some money via the American Opportunity Tax Credit or Lifetime Learning Credit.

On the other hand, one thing you'll want to avoid doing is hiding income you know you received. So, if you're sitting on a stack of 1099 forms listing income from various sources, such as freelance gigs or investments, be sure to come clean about it on your taxes. For every such form you get, the IRS receives a copy too, and if your return doesn't match what the IRS is seeing, you could easily land on the IRS audit list.

Whether it's skimming a few hundred dollars off of your earnings or exaggerating a deduction ever so slightly, cheating on your taxes just doesn't pay. You're better off focusing your efforts on lowering your taxes legally and eking out whatever savings you can.


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