Integrated Global Business Solutions (IGBS)

Business Alert from January

Beware of income tax scams

Internal Revenue Service investigators make it their business to identify and prosecute various tax scams, so make sure you don't get caught on the IRS's bad side. Even if you use a paid-preparer to do your income tax returns, you as the taxpayer are ultimately responsible for paying the correct amount of income taxes. Here are a few common schemes to avoid:

Failure to pay at all. Some groups regard federal income taxes as illegal, but this claim is based on frivolous arguments that have been thrown out of court time and again. Fall for this scheme, and you may face a civil suit and a huge tax bill. Taxpayers certainly have the right to contest their tax liability in a court of law, but disregarding the law altogether is not an option.

Fake tax refunds. Some criminals use the Internet to pose as representatives of financial institutions to entice unwary taxpayers into divulging personal information. In a typical scam, an email notifies you about a tax refund. You click on a hyperlink, which directs you to an official-looking Web site where you're asked to input personal information, including credit card numbers. A form of "phishing," this is yet another ploy to steal your identity. Don't fall for it.

Phony charitable donations. Some taxpayers abuse deductions for contributions to charity. A common example is overvaluing donated property. If you're tempted to inflate a donated item's value, take a step back. Is that watercolor painting really worth a king's ransom? What's the real market value of that worn-out overcoat? Remember, if the IRS audits your tax return, you'll have to justify those valuations. So err on the conservative side. Make sure your gifts are legitimate, properly valued, and well-documented.

Home business scams. If you work at home, a portion of your home business expense may be deductible. Again, it pays to be cautious. If you plan to claim a portion of your home's expenses on your tax return, your home office area must be used "regularly and exclusively for business purposes." Installing a computer in your den probably won't qualify. Also, be careful about payments to family members. Only deduct actual expenses that are needed to operate the business.

To avoid these common schemes, just make sure you or your preparer fill out tax returns honestly and completely. And keep an eye out for scam artists trying to steal your identity.

The information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or business consulting.

If you have any questions or comments contact an IGBS senior business consultant at 703.934.6170