Tax Season: What is the IRS “Dirty Dozen”?
For some, tax season can be an exciting time of getting much-needed extra money. For others, it is a scary and confusing time of unexpected costs and fees. Whatever attitude you may have, being aware of the IRS “Dirty Dozen” is important. This list is released by the IRS every year and represents the worst of the worst tax scams. Though they exist all year round, taxpayers are especially susceptible during tax season.
1. Identity Theft
This top scam’s name speaks for itself. Identity theft is when someone uses your personal information to commit fraud or other crimes without you knowing. In relation to tax season, they will use your personal information to file a fraudulent return and claim a refund that isn’t theirs. The IRS continues to take measures to prevent this from happening, which is one of the reasons your tax return can take a while. If you believe someone has stolen your identity this tax season, contact the IRS immediately.
This tax scam is when criminals use email or a fake website to try and steal your financial information. Just know that the IRS will never contact you via email for personal information. If you get a suspicious email, call the IRS first to confirm your status.
3. Return Preparer Fraud
If you pay someone to do your taxes this season, make sure it is someone you can trust. Ask about service fees and check their qualifications and history. Even though they prepare your taxes for you, you are the one responsible for all of the information provided. Fraudulent tax preparers will encourage you to claim improper credits, deductions or exemptions.
4. Hiding Income Offshore
If you have bank accounts in other countries, make sure you know the reporting requirements. It is illegal to use offshore accounts to hide income and avoid U.S. taxes.
5. Telephone Scam
Much like phishing, this tax scam involves criminals pretending to be the IRS. It is common for scammers to attempt to collect fake tax debts and to threaten legal action if you don’t pay immediately. If someone calls you claiming to be an IRS agent, contact the IRS yourself using the information provided at IRS.gov. Never give your personal and financial information over the phone.
6. False Promises of “Free Money” from Inflated Refunds
Similar to preparer fraud, be wary of scammers offering “free money” from the IRS. Free money sounds too good to be true, because it is. Don’t be talked into filing fictitious claims for rebates or the false promise of Social Security refunds. Once again, it will be your fault even if you didn’t file them and you could end up paying a $5,000 penalty.
7. False Income, Expenses or Exemptions
Some people try to cheat the system by claiming too much or not enough income on their taxes to get a bigger refund. It’s not a question of if but, when the IRS will find out and the consequences are costly. File the most accurate return possible and you will have nothing to worry about.
8. Falsely Padding Deductions on Returns
Be honest about your deductions for business expenses and charity donations. It is a great way to increase your refund, but only if you’re telling the truth. If you overstate your deductions or improperly claim credits, you could get jail time or other criminal prosecutions.
9. Abusive Tax Structures
Some tax preparers will convince you that there are complex tax avoidance schemes to prevent you from owing money on your taxes. If you are in doubt about what is legal and what is not, contact the IRS. It is always better to check for what is legal than to find out the hard way that it isn’t.
10. Excessive Claims for Business Credits
Similar to number eight above, padding your business expenses to get a bigger refund is a tax scam. Confirm your travel expenses and personal property used for your business before claiming tax credits. A qualified tax preparer can assist you in determining if you meet all of the requirements for the business credits and that you are properly claiming them. Be extra mindful of the fuel tax credit and research credit as the IRS is cracking down on those.
11. Frivolous Arguments
People who try and evade taxes will have a lot of reasons of why they don’t think you should have to pay your taxes. While you have the right to contest your liabilities in court, make sure they are legitimate and have not been thrown out in court previously. If you refuse to pay taxes for religious, moral or cultural reasons, you will get nowhere except owing the IRS $5,000.
12. Fake Charities
Creating a fake charity may seem like the lowest of low, but there are people out there who do this to steal money and sometimes identities. Before you donate to a charity and claim it on your taxes, make sure they are legitimate, or the IRS could view your claim as fraudulent.
AmeriCash Loans and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.