Honest citizens have little to fear from the Internal Revenue Service, but criminals prey on the naive and the complacent. It’s everyone’s responsibility to report truthful information and pay their share of annual income taxes, but conmen may attempt to convince you otherwise.
It is okay to save a little on your tax bill, but it’s never a good idea to cheat the IRS. Below are five common tax scams to avoid at all costs.
The Zero Gain Game
Since the tax rate is based on your income, by claiming that you have not actually made any money, you can avoid paying taxes. Some business do operate at a loss, and for nonprofit organizations, it is perfectly legitimate for them to claim no income. Individual citizens are not failing businesses or nonprofit organizations. Using a Schedule A to deduct the entirety of your earnings raises a red flag with the auditors at the IRS.
Some try to avoid paying by filing form 843 to abate a portion of their past tax liabilities. For legitimate reasons, the government may choose to abate some taxes, but you cannot abate previously assessed taxes once they have been determined using a Substitute for Return on past filings. The IRS has payment plans and programs for those experiencing financial difficulties.
This tactic has become associated with the secretive schemes of the wealthy. By keeping funds hidden in accounts that the government is not aware of, they are able to reduce their tax burden. Hiding income may lead to the seizure of assets, fines and possible prison time. Avoid these complications by simply reporting all of your income honestly.
Tax Preparer Fraud
Another common scheme is to overcharge a customer for tax preparation services. These con artists usually talk their clients into making many of the fraudulent claims listed above to justify increasing the size of a return check. They take a larger percentage of the return and leave the client with the liability in the event of an audit. Work with only reputable tax preparation experts, and do some comparison shopping beforehand to become familiar with reasonable preparation fees.
As 2290tax.com discusses, a tax phishing scheme is when criminals under the guise of tax professionals obtain the personal financial information of victims. Some may pose as tax experts offering savings, and others pretend to be IRS agents. Personal information is then used to set up false lines of credit and take money out of your accounts. Never give your personal information to an unverified source over the internet, mail or phone.
You don’t need to be an expert in tax law to avoid being cheated. By simply being aware of the basic requirements and dealing with licensed tax preparation professionals, it is possible to protect yourself and your assets.