With tax season arriving closer, chances of falling into tax scams are also increasing. For protecting the taxpayers from these tax scams, IRS has come up with a list of top 10 scams that can harness the tax process.
Knowing about these scams can help the taxpayers to witness an easy tax season. Here’s a list of 10 scams that might trouble you while you file your tax or demand tax return.
1. Phone scams
Phone scams are the most obvious part of tax scams for trapping the taxpayers into false money transactions. The callers pose like IRS professionals and ask for bogus tax debts threatening the payers of arrest if the amount is not paid on time. According to IRS, phone scams have gradually increased within years and more people are trapped in these scams. The best solution is not to pick any IRS calls if not expected, says IRS.
2. Stealing Identity
Stealing identity or identity theft is another trap where another person uses your personal information for filing a tax or asking for a refund. You must protect your Social Security Number or set a strong password and other tax or personal information in order to protect tax fraud in your name. However, IRS has developed new methods to detect tax-return-related identity theft during years.
3. Phishing scams
Phishing is a method of gathering personal information using e-mail or a fake website. There are cases when you see emails and websites demanding your Personal Info or links demanding installation of any kind of malware or spyware. If you receive any of email related to the IRS, you can forward a message to firstname.lastname@example.org. You must remember that the IRS never asks for any kind of personal information using emails.
Source- Machine Hosting
4. Tax preparer fraud
Most of the taxpayers depend on professional tax preparers for filing taxes or any kind of assistance in tax returns. According to IRS, out of 10 taxpayers, nearly 6 of them depend on preparers and sometimes those tax preparers try to encourage the taxpayers to claim improper credits or deductions in hope of saving some money for themselves. So, you must be careful while choosing your tax preparer. Check for a tax preparer who sign the returns they prepare and also enter their Tax Identification Number.
5. Claiming credits using distorted income
It is obvious to think of saving some bucks but distorting income for this? No, it is not a way to save tax. There are cases when the taxpayers hide or distort their income when filing for a tax or demanding tax return. But the truth is, Refundable Tax Credits always demand accurate information of the person’s income. The person accused of falsifying income may be asked to return the refund with an additional charge or may face criminal charges. So, try to avoid falsifying income when claiming credits, you can be a part of serious trouble if caught.
6. Excessive Claims for Business Credits
Excessive claims for business credit is an improper way to ask for tax reduction. The business personals often try to save tax amounts by unsupported claims and this leads to serious issues, sometimes they end up with fines or penalties. Majorly fuel tax credit scams and research credit scams are observed and the IRS is involved to find these issues in businesses.
7. False arguments to avoid tax
In the long list of tax scams, IRS has also mentioned frivolous tax arguments used by the taxpayers to avoid tax. Some of the common examples of frivolous tax arguments comprise the refusal to pay taxes on religious and moral grounds, claiming the employee entitled to federal tax are those working for the federal government or only foreign-source income is taxable. But these arguments can lead to penalties and fines.
8. Abusive tax shelters and transactions
Abusive tax shelters are investment schemes that claim to reduce your income tax without changing the value of your assets or income. It is not mandatory that the abusive tax shelters are larger or billion-dollar companies, they can be small firms promising trust engagement. But the truth is nobody can legally avoid taxes using multiple layers of assets, trusts or companies or manipulating any kind of transaction. So, the better option is to avoid this kind of scheme and think more before handling your transactions with any other company.
9. Disguised offshore tax
Doing transactions in foreign countries, having extra cash or having a brokerage account is not a fault, but hiding the same is. There are notable requirements where the taxpayers need to inform about the offshore properties or any kind of foreign investment. You need to submit all your tax info to FBAR (Report of Foreign Bank and Financial Accounts) in case you have to pay any offshore tax. The taxpayers disguising these tax amounts can be charged for criminal offenses or entitled under civil or criminal penalties and fines.
10. Fake charities
Fake charities are the most verse trap, the taxpayers are often seen to fail charitable gifts that are tax-deductible. You can donate a specific amount and that would not be deducted in your tax amount, the reason is they are fake or may not be countable under the tax-deduction. You must look for a recognized charity or a known one. Before donating any amount, always remember to itemize your deductions and have a receipt for every donation. Avoid submitting your Social Security Number or password while asking for a receipt for your donation. Keep in mind that you only donate property or gifts that are valuable or antique and never overlook payroll deductions.
You must be a neat taxpayer, but sometimes you are trapped for faults you have not done. The knowledge of these tax scams will help you avoid those faults. No matter how sincere you get while filing the taxes, try avoiding tax preparers for every big and small tax deductions or filings. Well-versed with all the necessary tax scams, I hope this blog will help you strongly survive the tax season.