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Personal Finance > Taxes
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Do you cheat on your taxes?
Most taxpayers say they don't. But with April 15 fast approaching, white lies may be another matter.
April 10, 2003: 4:26 PM EDT

New York (CNN/Money) - You don't want to pay taxes, but would you cheat?

If you said, "no" you've got company. Seventy-six percent of Americans said they'd never, ever cheat on their taxes, according to a recent Roper Poll. That's a sizeable amount, but nevertheless fewer than the 87 percent of honest souls who back in 1999 said they'd be loathe to lie.

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Have you ever cheated on your taxes?
  Yes, in a big way
  Only white lies
  Never

Outright cheating is one thing. Taking small liberties, however, may be another matter. Have you ever included receipts for expensive meals you enjoyed with friends along with your un-reimbursed business expenses? How about neglecting to mention the fact that you've got a tenant paying you cash rent to live in your spare bedroom?

It turns out that taxes are a lot like other thorny issues like, say, marital fidelity. Plenty of individuals may publicly swear they stick to the rules. But when it comes to preparing returns in the privacy of their own homes? Well, let's just say that half of all marriages end in divorce.

To be sure, it may be difficult to know how blurred lines become on tax matters. The IRS itself seems unclear on the question of tax compliance. Last year, for example, the agency figured as many as 2 million Americans used offshore tax havens to avoid paying taxes, but has since slashed that estimate to hundreds of thousands of opportunists.

Moreover, the last time the IRS estimated the gap between what taxpayers owe and what they actually pay was back in 1988, when it turned out that individuals were shortchanging the government by a cool $278 billion.

"I don't think people willfully evade taxes but they do push the limit," says Frank Degen, a Certified Financial Planner and Enrolled Agent who represents taxpayers in audits, hearings and other matters before the IRS. "People have this feeling that the guy next door is doing something wrong, so if they do everything right, they're dupes."

Last-minute tax tips

Still, it may be better to be duped than caught. At least, that seems to be the message of the IRS, which deliberately publicizes cases of tax cheats who've been busted.

Stories of celebrities run astray (or accused of running astray) of the tax code make for especially good object lessons. Consider, for example, the recent tales of Sam Waksal, Martha Stewart, Dennis Kozlowski or other troubles of the rich and famous.

In fact, if you're thinking that the odds of an audit are pretty slim, be forewarned. After years of scaling back on its audits, the IRS has started to scrutinize returns with greater frequency. The agency won't say who's a likely target for extra reviews, but it has made clear that taxpayers whose incomes exceed $100,000 can expect more audits than those who earn less than that.

Who gets caught

So, how do you avoid tangling with the good folks at the IRS?

First, report all your income. The IRS automatically gets copies of W-2 and 1099 forms, so it knows what you earn. If your income isn't reported don't necessarily assume it's safe to leave it off your tax return.

Disgruntled spouses (usually wives) may let the IRS know that their husbands have been cheating on their taxes, said Degen.

"I don't want to sound sexist but it happens a lot," Degen added. "The husband is working off the books and the wife calls the IRS."

Neighbors have also been known to notify the authorities if, say, someone has rented out their home to tenants. The IRS also has found cheats during the course of other investigations. For example, it may audit a business that's been writing regular checks to someone that turn out to be un-reported income.

Make sure you've got back-up documents to support whatever deductions you take.

Don't forget, like grade school, neatness counts. You want your return to appear that it was prepared carefully, not slapped together.

Check for common mistakes that can trigger an audit. For more tips on ways to stay out of trouble, click here.  Top of page




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