Tax season isn’t about to make its presence without tax scams, fraud, identity theft, and people looking for (mostly illegal) “loopholes.” Filing your small business taxes early can help prevent most of the tax scams floating around this time of year, but it’s still important to be on the lookout.
Pay especially close attention to these tax scams when filing small business taxes:
- Frivolous Tax Arguments. Scam artists encourage taxpayers to make unreasonable claims to avoid paying taxes they owe. Taxpayers certainly have the right to contest liability, but they do not have the right to disobey the law. A frivolous tax return can cost you $5,000…probably would have just been easier to pay your tax bill in the first place.
- Falsifying Income to Claim Credits. Avoid inventing income to claim certain tax credits. Scam artists easily talk taxpayers into this every year, but taxpayers are best served by filing the most accurate return possible to be in accordance with the law.
- Hiding Income with Fake Documents. On the other end of the spectrum, there is the falsifying of Form 1099s and other fake tax documents. Inflating tax refunds with fake documents is a huge red flag to the IRS. Regardless of who prepared the tax documents, the taxpayer is ultimately responsible for what is represented there.
- Fake Charities. Be on guard about groups pretending to be charitable organization to attract donations. This is especially true for small businesses, as they are often a target of these organizations. Take a few extra minutes to ensure the charity is legitimate by checking their status on IRS.gov.
- Phishing. The IRS will not send you an email about a tax bill or refund randomly, so watch for fake emails and websites looking to steal your personal information. Don’t bother opening strange or unexpected emails, as they are likely to be scams.
- Return Preparer Fraud. Don’t be sucked in by a fraudulent return preparer promising the best and highest return. If you’re worried about owing a lot of taxes on income from your small business, talk to a professional accountant who can help you discover legitimate deductions and set up a system to pay your taxes. While most tax preparers provide honest, high quality service, there are always those who set up shop every year to perpetrate refund fraud.
- Inflated Refund Claims. Again, don’t be lured in by a preparer with dollar signs in their eyes. Be extremely wary of anyone asking you to sign a blank return or who promises a large tax return before even looking at your records. This is especially true for tax preparers who charge a percentage of your refund for their services.
- Phone Scams. Perhaps the most prevalent tax scam, aggressive and threatening phone calls from people impersonating IRS agents continues year after year. Often, the criminals threaten police arrest, deportation, license revocation, and the like. Keep your guard up during tax season and always double check the source of these threats; it is very likely not the IRS.
- Identity Theft. Also an extremely common crime during tax season. If a criminal has your social security number, they can file a false return in your name. Read more about identity theft during tax season, here.
- Excessive Claims for Fuel Tax Credits. Be careful of improper claims for fuel tax credits. The fuel tax credit is generally limited to off-highway business use, including farming. This credit is not available to most taxpayers, but the IRS often finds preparers who coax taxpayers into claiming this credit to inflate their refund.
- Offshore Tax Avoidance. It’s always a bad bet to hide money and income offshore. End of story. The IRS offers the Offshore Voluntary Disclosure Program to help people get their taxes in order.
- Abusive Tax Shelters. Taxpayers should avoid using abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true.
The best way to avoid tax scams is to simply consult a professional and file your taxes early. If you file your small business taxes long before April 15, you can rest easy knowing that any suspicious phone calls or emails you receive are indeed fraudulent and you need not worry about them. If you do find yourself in the midst of a tax scam this year, give Mazuma a call. We can help.
To view the entire list of tax scams from the IRS, click here.