This is part two of the Dirty Dozen. The IRS has 12 targeted areas that are common for individuals to purposively attempt to scam and reduce their tax liability. We covered the first six of the dirty dozen and now we are taking a look at the final six.
Abuse of Charitable Organizations and Deductions
When you donate to a charity, the charity reports that donation to the IRS, so don’t make the mistake of trying to claim more than what you actually gave.
Abusive Retirement Plans
Don’t try and claim more on retirement plan contributions then what you actually put it. The banks have to report this information and it will cost you more than if you actually contributed what you claimed.
Disguised Corporate Ownership
Corporations and other entities are formed to protect the owner from tax consequences. If there is a legitimate need, please create the ownership. But, if there isn’t, you could put you in a place for an audit and will be forced to become compliant with tax law.
If you are trying to falsely reduce your taxable income to zero it could result in a $5,000 penalty.
Misuse of Trusts
Just like with corporate ownership, one could also misuse a trust. The IRS has seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. Seek the advice of a trusted counselor before entering into a trust arrangement.
Fuel Tax Credit Scams
Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But other individuals are claiming the tax credit for nontaxable uses of fuel when their occupations or income levels make the claim unreasonable. Again, this scam could cost you more than you saved.
If you have any questions or are looking to maximize your return, please reach out to your local income tax professional at Liberty Tax® office.