Dodging Deductions? Why Cheating On Your Taxes Isn’t Worth It

Tax season has arrived and if you’re considering filing without all your tax documents, or worse, misreporting information on your return, you might want to think twice. This year, the Internal Revenue Service (IRS) is stepping up its scrutiny, according to financial writer Laura Saunders in an article for the Wall Street Journal published April 4.

Tax, season, filing, IRS, documents, under report, misreport — Source: alexsl

The IRS’ computer system is actively looking for omissions.

The IRS already has access to a vast amount of information that helps it detect unreported income. That’s because, by law, employers, banks, financial institutions, and even freelance platforms are required to report payments made to individuals. As Saunders notes, the agency has been actively looking for tax returns that contain omissions

The department uses powerful computer systems to automatically compare the income reported on tax forms—like W-2s and 1099s—with what taxpayers include on their returns. If there’s a mismatch, the system flags it and sends out notices and proposed bills, which taxpayers can dispute. This matching process isn’t resource-heavy and is set to ramp up later this year, continuing well into the next, according to Saunders.

To put this into perspective, if you earned $1,200 from freelance work, the company that paid you likely sent a 1099 form to the IRS. If you leave that income off your tax return, the IRS will see the mismatch and they already have the form, even if you don’t include it. The same applies to W-2s if you’re a traditional employee. W-2 forms report your wages and withholdings, and the IRS expects to process more than 250 million of them this season.

Worried black couple having problems with their financial bills at home. — Source: skynesher

But it doesn’t stop there. The same system can also identify people who haven’t filed a return at all if a third party reported income under their name. In those cases, if the taxpayer ignores follow-up notices, the IRS has the authority to file a substitute return on their behalf—often without the deductions or credits the person might have otherwise claimed.

In addition to W-2s and 1099s, the IRS receives a flood of forms reporting other types of income from capital gains to gambling winnings and unemployment benefits. You need to report all of it. Failing to do so could delay your tax return.

Tax professionals are under increasing pressure to ensure the returns they sign are accurate and they may refuse to file yours if they spot discrepancies. An inaccurate return not only risks penalties and fines for you but could also jeopardize a preparer’s license.

To avoid delays or audits, make sure you’re reporting all your income correctly. If you’re a business owner, double-check your expenses and deductions. Claiming too much or underreporting income could raise red flags.

If you’re among the 80 million Americans who file their own taxes—whether through commercial software or even by hand—be especially cautious. It’s easier for self-filers to overlook income, exaggerate deductions, or accidentally skip filing altogether. But the IRS’s systems are designed to catch these kinds of mistakes and the consequences can be costly.

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Earlier this year, the IRS was among several federal agencies affected by major layoffs as part of the Department of Government Efficiency’s cost-cutting initiative. According to CNBC, between 6,000 and 7,000 probationary employees were let go, and some reports suggest the agency could eventually reduce up to half of its roughly 90,000-person workforce.

But don’t assume fewer employees means less scrutiny. In fact, with a leaner team, the IRS is expected to review returns even more deliberately. They’ll be paying closer attention to the accuracy of every return they process, especially when it comes to underreported income or inflated deductions.

That’s why now, more than ever, it’s critical to file carefully. Double-check your numbers, gather all your documents, and make sure nothing’s missing. It’s a small effort that can save you from a major headache later on down the road.

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Tax Season Is Here! Don’t File Without All Your Documents