Are tax deductions voluntary?
If I did something that I know is a deductible expense and did not deduct it, is that a sanctioned tax filing?
The result is that I would end up paying MORE tax. This also results in me reporting a higher income, which is truthful because I did earn that much and more, and it is advantageous in a number of ways. On the contrary, with a few large deductions added the reported income (AGI) would be lower and I would be eligible for a tax refund.
I don't expect revenue agencies to have an issue with this, but I'm not asking about my "chances" of having my decision not to deduct an expense being put under scrutiny. I'm asking about how that is viewed maybe in a regulation or a court decision. I'm not looking for "advice", just credible sources that address this question
Most issues I see are where people claimed dubious deductions to lower their tax.
thanks for any insight
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There are many people who have deductions far above the standard deduction, but still don't itemize. That's their option even though it comes at a cost. It may be foolish, but it's not illegal.
If @littleadv citation is correct, the 'under penalty of perjury' type issue, what of those filers who file a Schedule A but purposely leave off their donations? I've seen many people discuss charity, and write that they do not want to benefit in any way from their donation, yet, still Schedule A their mortgage and property tax. Their returns are therefore fraudulent.
I am curious to find a situation in which the taxpayer benefits from such a purposeful oversight, or, better still, a cited case where they were charged with doing so. I've offered advice on filings return that wasn't "truthful". When you own a stock and cannot find cost basis, there are times that you might realize the basis is so low that just entering zero will cost you less than 0 in extra tax. You are not truthful, of course, but this kind of false statement isn't going to lead to any issue. If it gets noticed within an audit, no agent is going to give it more than a moment of time and perhaps suggest, "you didn't even know the year it was bought?" but there would be no consequence.
My answer is for personal returns, I'm sure for business, accuracy to the dollar is actually important.
Legally: gods know. I would strongly recommend asking the Law asre of Stack Exchange to advise on that.
Practically: What's the worst that happens? They audit, you say "Yeah, I could probably have claimed these deductions but I didn't want to; is that a problem?", they decide and either nothing happens or they issue you the unwanted refunnd. They aren't going to fine you for overpaying.
Unless this would expose something criminal -- or you're a public figure and it would be embarassing -- this strikes me as falling firmly within the bounds of "no harm, no foul".
What kind of "deductions" are you talking about? Many deductions, like the standard/itemized deductions, come after the AGI, and do not affect the AGI, so I don't see how this would make any difference. Maybe you are talking about deductions that come before the AGI?
If you want to increase your AGI legitimately, here's a way: Every year, itemize deductions on your federal return, and over-withhold your state income tax (assuming your state has income tax) by a lot, and/or make voluntary extra payments to your state income tax. As a result, you will get a huge refund on your state taxes the following year. Then you will need to include this refund as income on line 10 of the federal return that year, which will be included in the AGI. (Of course, you will also be able to deduct a lot of state income tax paid every year in the federal itemized deductions, but those come after the AGI.)
I did a little research and found this article from 2006 by a Villanova law professor, titled "No Thanks, Uncle Sam, You Can Keep Your Tax Break". The final paragraph of the article says:
Under these circumstances, it is reasonable to conclude that a taxpayer is not required to claim a allowable deduction unless a statutory provision so requires, or a binding judicial precedent so specifies. It would be unwise, of course, to forego a deduction that the IRS considers mandatory such as those claimed by self-employed individuals with respect to their self-employment,
whether for purposes of the self-employment tax or the earned income tax credit. Until the statute is changed or some other binding authority is issued, there is no reason taxpayers who wish to forego deductions, such as the dependency exemption deduction, should hesitate in doing so.
(The self-employment tax issues in the quote cited by CQM are explicitly discussed in the article as one of a few special kinds of deduction which are mandatory.)
This is not a binding statement: it's not law or even official IRS policy. You could never use it as a defense in the event that this professor turned out to be wrong and the IRS decided to go after you anyway. However, it is a clear statement from a credible, qualified source.
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