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

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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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