There are a few things to watch out for this tax season to help protect your hard-earned money.
Hiring unqualified preparer: It’s easy for an accountant or tax preparer to take advantage of you, especially if you’re unfamiliar with the tax code or paperwork involved with filing a return. There are many preparers out there who — to make an extra buck — will skim a portion of a client’s refund, charge more than they should for services and lure taxpayers to their office by promising unattainable refunds.
It’s up to you to be careful when selecting a preparer. In future filing seasons, all paid preparers will be required to register with IRS in order to receive a preparer tax identification number.
Phishing for personal information: Be careful before replying to that e-mail from the IRS notifying you of the thousand dollar refund you’re eligible for this year.
“IRS impersonation schemes flourish during the filing season,” the agency said. “Criminals use the information they get to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.”
These scams can come in the form of e-mails, phone calls, faxes or even texts to your cell phone. If you receive an e-mail from someone claiming to be from the IRS, don’t open any attachments or click on links included in the e-mail. Instead, forward the message to the IRS at email@example.com.
Filing false or misleading forms: Scam artists are claiming refunds they don’t deserve by filing “false or misleading” returns, said the IRS. Taxpayers are fabricating information returns and claiming made-up withholding credits in an attempt to make a little extra money from the IRS by way of a tax refund.
Some taxpayers carry out this scheme because they are under the belief that the federal government holds secret accounts for each of its citizens, said the IRS. These individuals believe that the funds in these hidden accounts can be accessed simply by issuing a Form 1099-Original Issue Discount, which is a phony information return. There is a person doinginfomercials who makes these claims and has already been issued cease and desist demands by the government for past fraud.
Overstating your charitable donations: While giving to charity is a noble act, don’t reverse it by lying about the amount you donated.
Fishy retirement plans: The IRS is on the hunt for taxpayers who abuse their retirement plan arrangements, including individual retirement accounts (IRAs). Taxpayers who enter transactions that allow them to exceed the contribution limit of an IRA are wanted by the IRS, as are those people who fail to properly report early distributions.
Claiming gas costs: Trying to claim the money you spend on your hour-long commute to work each day? This could cost you a $5,000 fine from the IRS. While taxpayers such as farmers who use fuel off highways as a means of carrying on their trade or business may qualify for the fuel tax credit, you can only claim the credit if it meets specific IRS requirements.
Disguising your company: The IRS is currently working with state authorities to identify corporations and other entities that disguise the ownership of a business. These entities are often disguised through using a third party to request an employer identification number, and the businesses or financial services can be used for the underreporting of income, fictitious deductions, money laundering, financial crimes and even terrorist financing.
Giving yourself a pay cut: In an attempt to lower the amount of taxes owed, some taxpayers are filing phony wage-related information returns instead of the required returns. “Taxpayers should resist any temptation to participate in any of the variations of this scheme,” said the IRS, adding that false filings could result in a $5,000 fine.
Abusing trusts: An increasing number of people are misusing private annuity trusts and foreign trusts to transfer income and deduct personal expenses. “Some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes,” said the IRS. “Such trusts rarely deliver the tax benefits promised and are used primarily as a means to avoid income tax liability and to hide assets from creditors, including the IRS.”
Inflating your withholding credit: You could be fined $5,000 this year if you exaggerate your withholding when reporting nontaxable Social Security benefits, which would result in your falsely report zero income to the IRS.
Remember a referral is always the best way to find a good tax preparer. Find out how long the person has been preparing taxes and stick with someone who has been doing it for a long time. We all have to cut our teeth in our craft, but the most experience wins out with tax code as it changes frequently.