Common Scams Used to Reduce your Tax Liability
ByRoni Lynn Deutch
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Illegal Shelters
While 401(k)s and other similar "tax shelters" are completely legal, there are dozens out there that are not. Hundreds of people fall for tax shelter schemes. Promoters will boast that they can legally hide or store away your income so that it cannot be taxed. Be warned that you should always be weary of anyone trying to "hide" your money from the IRS. Always check with a local tax professional to make sure you are not doing anything illegal.
Zero Wages
A common way tax scammers try to avoid paying taxes is by using IRS Form 4852 (Substitute Form W-2) or a "corrected" Form 1099 to reduce their taxable income to zero. Some taxpayers will even put a note on the form arguing the definition of wages, or a false story of a company that refuses to issue a corrected form. The IRS is on the lookout for this.
Hiding Income Offshore
Much like the Swiss banks accounts you see in movies like "Bourne Identity," there are (usually very wealthy) people who hide large amounts of money in accounts overseas. Although the hope is always that the IRS will not see it, they usually do. Since September 11th, the federal government has had the power to monitor foreign bank accounts as well as those in the country.
Donation Fraud
False charities have been popping up for tax fraud for years, but now there is a new twist. Donor-advised funds were created so that a person could make a large donation at once and take a deduction from that year’s tax return, but the donation itself would be distributed over time to various charities. This is rarely done right, and many IRS audits get mailed out when these types of scams go down.
Tax Preparer Fraud
The lowest of the lows is a tax preparer committing tax fraud. They will use one of many tactics to take advantage of their own clients. Often this means over-inflating prices and then taking portions of their clients’ rightful return for themselves. The IRS has a hard time tracking these guys down because they are camouflaged within the large tax preparation industry. So be careful with who you work with!
Unconstitutional Taxes
Who has not heard this one before? Hundreds of Americans resist paying taxes claiming that taxation is somehow unconstitutional. However, this is simply not true. The court has been heard case after case arguing this same case, and each time they have struck it down. Unless you would like to be the next one in line, it is probably better to just pay your taxes.
Home Business Scams
It is hard enough being a small business owner with a whole new tax system to understand, without a scam artist telling you t deduct more than you should from your taxes. The IRS claims that more and more people are taking advantage of home business deductions and small business deductions, and at the advice of "professionals". Before you make any large deductions, be sure to check with a tax specialist you trust.
Misuse of Trusts
Although some scammers will tell you that you can lower your tax liability by transferring funds into trusts, this is not always the case. Not all trusts provide tax benefits, and as with all major financial decisions it is always a good idea to speak with a professional before doing anything rash.
The Roni Deutch Tax Center is one of the nation's hottest income tax franchise. For more information on owning a franchise visit RDTCFranchise.com, or check out Watch Me Franchise to see what it is really like to run a franchise business.
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