With tax day approaching, scammers are rampant. Many people fall for their ploys, only to pay the penalty later when the IRS catches up with them. We asked a panel of professionals for advice on steering clear of these scams. Here’s what they had to say:
Tax Liability
Many business owners, especially in the early stages of their company, try to spend money at the end of the year to reduce any tax liability. If they were profitable by $5,000 their first year in business, they’ll try to invest $5,000 back into the business before the tax period ends to maximize the efficiency of their dollars.
This makes sense in theory but often comes back to bite small business owners who aren’t aware that inventory purchases aren’t tax-deductible. If you run a supplement business and spend $50,000 on a manufacturing run, that doesn’t negate $50,000 of profit at the end of the year. There will still be a tax bill for the $50,000 in profit.
For those wishing to minimize tax liability at the end of the year, invest in marketing and brand awareness because those expenses are tax-deductible.
Ben Watson
Ben Watson, CPA is the virtual CFO of DollarSprout.com and founder of Fiscal Fluency, a personal finance and business coaching company. He equips small businesses and entrepreneurs with the skills and accountability to manage their businesses with confidence rather than fear. He’s also the co-creator of the Business Launch Kit – an online course with simple-to-follow steps to create your own business without making a mess.
Notices And Refunds
Notices from the “IRS” via phone calls, emails, texts.
- This time of year, many people are bombarded with phony communications claiming things like suspended Social Security Numbers, frozen tax refunds, legal action, etc. The IRS only ever communicates with taxpayers through the US Postal Service through forms that can be verified. These forms will have detailed information such as the last four digits of your SSN, a document title, reference number, instructions, and information. By contacting the IRS through a published method, you will be able to use the information on the form to comply with the communication. Never talk to someone claiming to be the IRS who happened to call you.
Bigger refunds
- The tax code can be very complex, but each tax preparer is legally obligated to play by the same rules. Don’t believe ploys claiming to provide help qualifying for “unknown” tax credits or insider information to exclusive tax deductions that no one else knows about.
Jacob Dayan
Jacob Dayan, CEO, and Co-founder of Finance Pal and Community Tax. Jacob has years of professional finance and is an entrepreneur in his space.
Beware of Phony Charities
Beware of scammers soliciting donations following natural disasters or political events. Though the IRS offers tax deductions for charitable contributions to charities, they will not accept deductions from unqualified charities. Many of them use names and websites to make them look authentic, so use the IRS website to determine whether or not they are truly qualified.
Donald E. Petersen
Donald E. Petersen, Florida TCPA and Consumer Rights Lawyer. Find me here: DONALD E. PETERSEN
Tax Preparation
The most common tax preparation scams arise when preparers receive a portion of the refund as compensation for preparing the return. The tax preparer will inflate the amount of the refund due by preparing a return that claims dependents that the taxpayer does not have or is not entitled to claim.
Eventually, the I.R.S. detects the fraud and insists on being paid the amount it overpaid plus interest. The tax preparer is often long gone and, even if the tax preparer can be located, the preparer usually blames the taxpayer who signed the return under penalty of perjury.
Taxpayers should run, not walk, away from any preparer who bases their fee on the amount of the taxpayer’s refund.
Retainer Fees
Many new tax firms are now charging monthly retainer fees to keep them as your CPA for the year; however, they perform the majority of their work around tax time, even if you are a business on quarterly payments which only need a quick calculation.
When you do the math, it adds up to $3K or more a year to hire a CPA on monthly retainer while it is likely much less, even more than 2/3 less, to hire a CPA for a once-a-year fee.
This is a crowdsourced article. Contributors are not necessarily affiliated with this website and their statements do not necessarily reflect the opinion of this website, other people, businesses, or other contributors.
