Are We All Cheating on Our Taxes?

April 15 is fast approaching. However, many people may be cheating or at least not being entirely forthcoming about their taxes. But where is the line drawn between people who do not know what they are doing, people who fudge on their tax responsibilities and full-blown tax cheaters? Money expert and coach Jeannie Dougherty weighs in on why people may be thinking about omitting or lying about their taxes this year.

“The most common fear is the belief that they don’t have enough money to pay their taxes. They are motivated to hide this fact from the IRS or the state because they also believe they have the right to do what they want with their money,”  she states.

Professional tax cheats know a great deal more than the average person when it comes to that line between genuinely not knowing and lying unabashedly.

“The motivation for a professional tax cheat is that they don’t know how to work with up-and-down cash flow in a business, real estate, or personal life. They often do have some of the money they owe but not all, which fuels this duality of keeping up with appearances instead of closing their money gaps,” explains Dougherty.

Additionally, how do these motivations impact their justifications for tax cheating?

“The motivation for a professional tax cheat is that they don’t know how to work with up-and-down cash flow in a business, real estate, or personal life. They often do have some of the money they owe but not all, which fuels this duality of keeping up with appearances instead of closing their money gaps.”

Tax fudgers are less malicious with their intent, and often become overwhelmed with the threat of a large or substantial tax payment. 

Jeannie shares, “A person who fudges their tax responsibilities may simply be overwhelmed by a health or family issue lasting more than a few weeks. They may report fewer earnings and increase their deductions to increase their refund or owe less tax debt.”

For tax fudgers, there is a common fear that they seem to share.

“The most common fear for those who “fudge their tax responsibilities” is “I didn’t know it was gonna be this much.” Those who fudge their tax responsibilities often try to pay their taxes at the last minute or late because it’s not an imminent financial priority. The tax refund is meant to be a source of hope for them, and any financial threat to it feels unfair. Often, folks focus more on food, gas, utilities, and rent. Survival usually comes before taxes.”

“Professional tax cheaters” often maintain two sets of books and might have other money-handling problems, such as gambling. 

“If someone is a professional tax cheater with a gambling problem, I highly recommend they receive treatment for their addiction. Many gamblers have tried and failed at reining in their spending. Their money brains require treatment to help them come to terms with their addictive money habits,” says Dougherty. “Many tax cheats have other mental health issues and are known as compulsive liars. This is why some friends and family know about some of the money concerns, and it takes years to discover the depths of the problem.”

There are some effective strategies for addressing these deeper financial management issues, and individuals can be encouraged to adopt more transparent and lawful financial practices.

Jeannie explains, “Some tax cheaters end up in prison for it or lose most of what they made. If you are in a business or personal relationship with a gambler and, most likely, a professional tax cheater, it may be helpful to hire a forensic accountant to determine where the money went. This will be especially helpful if you are served with a tax bill when you were told the taxes were paid. You won’t get a straight answer asking where the money went.” 

The practice of “fudging” tax responsibilities, such as not reporting accurate state residency or overstating deductions, appears to be driven by a desire for relief from financial pressures. Jeannie has some advice to offer individuals who may find themselves considering these tactics during tough financial times.

“Some folks may need to speak to an insurance company and ask for more case management help with transportation & paying for medication. Other times, it’s about contacting their employee assistance program or state programs to find the best affordable childcare solutions,” she says.

The key to tax season success is to be aware of resources available.

“Stop unnecessary subscriptions and see how much they pay for rent, gas, and food. If they have an income gap (which is most likely), who do they know can assist them with an improved resume for job searches and help them apply online for jobs? Do they know anyone who is hiring? Do they need to ask for a raise at work? Are they willing to take on side jobs to help manage some of their income gaps?  All of these suggestions are at no cost to them. It’s just them asking for guidance on making their efforts more strategic to be successful.”