- Bargaineering - http://www.bargaineering.com/articles -

How to Avoid Internal Revenue Service’s 2013 Dirty Dozen Tax Scams

Posted By Jim On 04/24/2013 @ 7:06 am In Personal Finance | 4 Comments

Every year, the IRS publishes a list of twelve tax scams they call the “dirty dozen.” It’s usually a mix of what you’d expect – a little identity theft mixed in with scams that prey on people’s inability to detect things that “sound too good to be true.” Taxes are complex enough that unless you spend a lot of time doing them, it’s easy to believe that an “expert” knows something you don’t. When that something could be a way to save money on your taxes, a lot of folks are willing to give it a try. If you hear about how the wealthy are putting money away in an overseas bank account because you read it in the newspaper, maybe the guy who showed up on your doorstep can do the same for you… even if you have no idea how it works.

Knowing the list itself isn’t all that useful because scammers are always going to find a way to rip people off. How they do it will change every single year. By the time something appears on this list, chances are the scammers have moved on. While it’s good to be aware of the techniques in this list (and some are so broad that they will always be on it… such as phishing and identity theft), it’s even better to understand tax law enough that you are never susceptible to these scams in the first place.

Today, we’ll just list off the twelve and what you need to know to avoid them.

2013 Dirty Dozen Tax Scams

Here are the twelve scams for 2013:

  1. Identity theft
  2. Phishing
  3. Return Preparer Fraud
  4. Hiding Income Offshore
  5. “Free Money” from the IRS & Tax Scams Involving Social Security
  6. Impersonation of Charitable Organization
  7. False/Inflated Income and Expenses
  8. False Form 1099 Refund Claims
  9. Frivolous Arguments
  10. Falsely Claiming Zero Wages
  11. Disguised Corporation Ownership
  12. Misuse of Trusts

I’ll first make the assumption, since you’re reading a personal finance blog, that you’re savvy enough to avoid identity theft and phishing (at least the obvious ones). You don’t leave your social security number, name and address in blog comments. You shred sensitive documents. You are smart about your identity.

As for the rest, they prey on a taxpayer’s desire to pay less in taxes. There are only three ways to pay fewer taxes:

  • Earn less money
  • Defer income
  • Accelerate deductible expenses

Number one is not desirable – you always want to earn more money. Tax brackets are marginal [3], so going into the “next bracket” doesn’t mean all of your money is taxed at the higher rate, just the next dollar.

As for deferring income and accelerating expenses, any last minute tax tips article will outline all the ways you can do this. None of the dirty dozen tax scams will ever appear as a tax tip in any reputable publication. In fact, most of the scams are pretty obvious – claiming zero wages when you shouldn’t? Inflating expenses? Those fall under “I know this is wrong but I hope the IRS has to process a lot of stuff so maybe it’ll slip through.” If you get caught trying to cheat the Treasury, then you deserve whatever penalties you get – I think we can all agree with that.

The only scam that is difficult to spot is the last one – trusts. Trusts are tricky entities that are often used for estate planning purposes. You can set up a trust in a way that lets you pass assets to others while avoiding inheritance and estate taxes. They can get complicated, which is why people fall prey to scammers, but given how estate tax laws have changed recently, only those with significant assets will need them. For most of those folks, you’ll have enough other advisers so that someone on your team should be able to spot a scam.

We’ve been fortunate in that we’ve never fallen prey to any of these scams. I’d like to think it’s because we’re knowledgeable but I suspect we just aren’t valuable enough marks.

(Credit: zoutedrop [4])

Article printed from Bargaineering: http://www.bargaineering.com/articles

URL to article: http://www.bargaineering.com/articles/avoid-internal-revenue-services-2013-dirty-dozen-tax-scams.html

URLs in this post:

[1] Tweet: http://twitter.com/share

[2] Email: mailto:?subject=http://www.bargaineering.com/articles/avoid-internal-revenue-services-2013-dirty-dozen-tax-scams.html

[3] Tax brackets are marginal: http://www.bargaineering.com/articles/tax-brackets-work.html

[4] zoutedrop: http://www.flickr.com/photos/24028533@N03/2317065892/

Thank you for reading!