Has anyone ever claimed more money then what they really make?

Question

Lets say a person is self employed. On their taxes why would someone claim they make more money?? since they have to pay the taxes on it??

Answer 1

Interestingly enough... you may not do so.

The reason someone may want to claim more than they earned is because there is a refundable credit called the earned income credit which follows a bell curve. At low incomes the credit is low. It increases as your income increase and, as income continues to increase it begins to fall until it reaches zero.

This credit is a refundable credit, which means that you can actually receive back more than you paid in through withholding or estimated payments.

There is a real temptation, therefore, if you have very low income to "make up" income in order to maximize your earned income credit.

But it is illegal to do so.

Answer 2

Actually, this is a common type of EITC fraud since the EITC is generally higher than the tax rates at the lower end of the income scale. A tax return claiming both Self Employment income and the EITC is closely scrutinized by the IRS for fraud indicators.

When you sign your tax return you are swearing under the penalty of perjury that the return is a complete and accurate statement of you income and all other information in the return. Claiming more income than you actually received (even without claiming the EITC) is considered filing a fraudulent return and can attract severe penalties.

Other reasons to mis-state income upwards would include bank and loan fraud, securities fraud, etc.

Answer 3

EITC fraud is also a reason people don't want to report all expenses on their Sch C.
This also increases their taxable income and is also illegal

Answer 4

no never