The Importance of Honest Income Reporting

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Honest reporting doesn’t just apply to journalists. It also applies to those pursuing a claim for income loss.

While fudging your reported income might save you from being taxed, it can create problems later on if you are injured in an accident and want to rely on your income tax returns to prove your pre-accident earning capacity.

For example lets say you’re actually earning $50,000 per year but only reporting $25,000 on your tax returns. You then become injured in an accident and are unable to work. You might want to pursue a claim for past and future income loss based on your pre-accident earning capacity. However, based on your reported income, you would only be able to prove a loss of $25,000 per year, which is just 50% of your true loss all because of your failure to report honestly.

Even if you come clean about your dishonest reporting, your credibility may be tarnished in the eyes of the insurance company (or worse, a jury) and you may likely be shut out.

I’ve seen cases where income tax returns show nothing actually being reported in the many years before an accident. This being the case, it’s hard to then claim entitlement to lost income when you clearly haven’t been honest in reporting it for years. This would require a very good explanation and I’m not sure who would even buy it.

Like most things in law, it’s about what you can prove.