Don’t Fall Victim to Tax Avoidance Schemes
No one likes to pay taxes. We all try to keep our tax liability as low as possible. Unfortunately, there are schemes out there designed to appeal to greed and a desire to avoid taxes at all cost. Some tax dodges are legal; others are just outright underhanded and illegal.
There are legal tax shelters like 401Ks and other plans that investment professionals can advise you about. Beware, however, of the illegal tax shelter. When someone talks to you about hiding your money from the IRS, this is a bad signal. You cannot legally hide your money from the IRS. They will find it and if they find it hidden in some illegal tax shelter, they are going to demand fines and penalties as well.
A corrected form 1099 or tax form 4852 are often used in an attempt to claim zero wages. This is an old scheme and the IRS is wise. Don’t even think of this method for avoiding taxes.
This is mostly an urban legend. While it is true that very wealthy people often did try to hide large sums of money by depositing them in overseas banks, it is not done so much these days since the Internal Revenue Service now has the power to monitor overseas and offshore banks.
This is a very complex charity deduction. Ideally, a person makes a large donation at once and uses the deduction for that year’s tax returns. Then, the donation is dispersed to various charities over a course of time. This deduction is routinely done incorrectly and the only thing it’s likely to get you is getting audited!
oTAX PREPARER FRAUD
This is where the person who prepares your taxes cheats in order to get you deductions to which you are not entitled. Often, they will inflate their charges to you and in justification claim their superior tax skills got you a lower tax liability. In reality, they are just scamming you in hopes the IRS will miss their inflated deductions this time around. In the event the Internal Revenue Service does catch on, they know the IRS will be coming after you first.
oINCOME TAXES ARE UNCONSTITUTIONAL
Probably, they are unconstitutional, but until the United States Supreme Court decides so, you have to pay them!
oWORK FROM HOME DEDUCTIONS
Some things are deductible if you work from home, and many are not. Deductions are dependent upon things like how many hours you spend working from home, etc. Don’t try and squeeze unreasonably low tax liability out of this deduction. The IRS is particular on home business deductions since many more people have begun claiming them.
Not all trusts offer a tax shelter. Before transferring money into a trust, check with a tax professional to find out if it will actually offer you any cover.
The best procedure to lowering your tax liability is to be honest. If you want to lower your taxes, get a professional to look over everything in an effort to find any honest deductions you might have missed.
Don’t try to squeeze money out of the IRS by participating in tax schemes that you know are probably misguided. Don’t inflate numbers, because an audit will find you out. Instead, take as many honest options as you can and pay as little as is reasonably feasible.
It’s very easy to be carried away with tax avoidance schemes. But almost all of them are deadly traps. What are they? How they will hurt you? Chintamani Abhyankar explains.