2025 Tax Prep Warning: 6 Signs Your Tax Preparer Knows You're Lying + Costly Consequences

As a seasoned tax professional working with a leading national tax service, one critical part of my role is detecting when clients may be submitting inaccurate or deceitful information. While it’s impossible to catch every false claim, certain common tactics dishonest filers use often raise immediate suspicion.

Essential Insights

• Whether you file your taxes yourself or use an accountant, it’s your responsibility to provide honest and accurate details.
• Experienced tax preparers can quickly identify red flags that suggest misinformation or manipulation.
• Typical warning signs include mixing business and personal expenses, claiming ineligible dependents, and hiding assets abroad.
• Submitting false information on tax returns can lead to hefty fines, penalties, and even criminal charges.

1. Fabricated Deductions

One of the most common deceptive methods is claiming extra deductions without proper proof. After reviewing the initial return, some clients suddenly recall “forgotten” expenses and request these be added—often without receipts or documentation. Knowingly filing false returns not only jeopardizes the filer but also the preparer.

2. Illegitimate Dependent Claims

Claiming dependents incorrectly is a frequent way to reduce tax liability and gain “Head of Household” status. This is especially contentious among divorced parents sharing custody, who may rush to claim children first. The IRS now requires more stringent proof of dependency, including residency and support documentation, to prevent fraud.

Update for 2024: Following the American Rescue Plan changes, the Earned Income Tax Credit was expanded for childless taxpayers in 2021, increasing credit amounts and adjusting eligibility ages, making accurate claims more important than ever.

3. Divorce-Related Tax Fraud

Some divorced filers misrepresent child support payments as deductible alimony to reduce taxes. Without a divorce decree confirming alimony status, such deductions are invalid and can trigger IRS scrutiny.

4. Underreported Income

Failing to report all income—including cash jobs or benefits—lowers tax bills unfairly and raises red flags, particularly when combined with dependent claims. This practice risks audits and penalties.

5. Misclassifying Personal vs. Business Expenses

Clients sometimes inflate business use percentages for vehicles or equipment or create fictitious businesses to claim false expenses. Tax preparers watch carefully for inconsistencies and require detailed usage evidence.

6. Concealing Overseas Income

U.S. citizens must report income earned abroad. Clients who omit foreign earnings or provide vague residency details prompt further investigation and documentation requests.

What Happens If the IRS Detects Fraud?

Submitting fraudulent tax returns subjects both the filer and preparer to penalties, interest, audits, and potentially criminal prosecution. Audits may extend to multiple years, and unsupported deductions will be disallowed. Additionally, whistleblowers can report tax fraud, earning up to 30% of recovered amounts.

Final Thoughts

Attempting to cheat on your taxes in 2024 can lead to severe consequences that far outweigh any temporary financial gain. Always provide truthful information to safeguard your financial future.

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