The instant the old year draws to a close and the new year begins, a lot of people start thinking about their tax returns. It's only natural. For many people, their anticipated tax refund represents a chance to get caught up on bills and maybe afford a few luxuries.
The other reason many people start thinking about their taxes is that they become stressed over the whole process of filing -- particularly if they own a small business or work as an independent contractor. Even people whose tax returns aren't complex often feel intimidated by the whole tax process. This is how an entire industry evolved to file their taxes for them -- despite the fact that there are many free programs available online that will do the job.
So, how much do you have reason to fear when filing your taxes? Will a mistake land you in federal prison?
Here's what you need to know:
- Indictment for tax evasion is uncommon. The Internal Revenue Service (IRS) only indicted 1,330 people out of roughly 150 million taxpayers in 2015.
- Not paying your taxes because you don't have the money is usually not the problem. It's lying about what you owe in the first place.
- Not filing a tax return at all is more serious than filing a tax return with mistakes -- as long as those mistakes are made out of ignorance or confusion and don't represent a deliberate ploy to avoid taxation.
- Genuine mistakes may net you a fine, but they aren't likely to send you to prison.
What's likely to get you into serious trouble?
- Hiding cash income from the IRS.
- Trying to deceive an auditor by hiding bank records or other sources of information.
- Lying to the IRS during an audit.
What's the smart thing to do? Pay your taxes on time, and pay what you believe you owe. Only take deductions if you believe you are entitled to do so. If you do find yourself facing an audit, don't lie. Talk to an attorney who has experience in defending people accused of federal crimes about your situation before you talk to the IRS if you believe that you're about to be indicted for tax evasion.