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Don’t fall for too-good-to-be-true tax pitches

by on
in Small Business Tax,Small Business Tax Deduction Strategies

The sheer complexity of the tax code causes many people to put their faith in anyone who promises tax-reduction magic. That's why the IRS rings its warning bell each spring, identifying the top tax scams being pitched by unscrupulous tax promoters.
 

Topping this year's dirty dozen list: bogus trusts.
 

Legitimate trusts can act as a potent tax-planning vehicle. But in the past four years, the IRS has secured more than two-dozen injunctions against tax promoters who market phony trusts as impenetrable tax shelters. Best bet: Seek the advice of your trusted professional—not an un-solicited e-mail—before entering into a trust.
 

This year's runner-up: frivolous tax-amnesty arguments. For a fee, "experts" will tell you that wages aren't income, that income tax returns violate your Constitutional right to self-incrimination or that the 16th Amendment that approved the income tax was never ratified. The IRS and courts have repeatedly shot down such arguments.
 

Third place: tax return preparer fraud. Criminal convictions of tax preparers doubled from 2003 to 2004. No matter who prepares your return, you are ultimately responsible for its accuracy. Use a trusted preparer, check references and check his or her work.
 

Other scams to watch for: credit-counseling agencies that promise to wipe out IRS debts, deductions for bogus charitable donations, offshore transactions and nonpayment of employment taxes. Read the full list in IRS IR 2005-19 at www.irs.gov/newsroom.
 

Coming attraction: The IRS says identity theft is also a rising concern. Taxpayers tricked into thinking they're being audited by the IRS are conned into turning over their financial and credit card information. Advice: Request your credit report at least once a year.

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