How To Avoid 5 Common Tax Scams

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Our friend Denise Richardson of givemebackmycredit.com has posted an article about the 5 most common tax scams and how you can recognize and avoid them for the upcoming tax season.

1. Phishing
Phishing can come from several places, such as social networking sites, fake websites, or email addresses. A tax phishing scam happens when a scammer tries to convince someone they are owed a tax refund but they have to provide personal information to prove their identity before the refund can be claimed. Providing personal information opens the door for identity theft. You can prevent this by being wary of emails supposedly sent by the IRS. Don’t click on any links in the email or provide any personal information. Clicking on the link can infiltrate your computer with viruses or spyware that can obtain personal information from your internet activity and files.

The IRS never sends out unsolicited emails to individuals, all matters of business are handled by mail or over the phone. The only emails they send are very general and don’t ask for information. If you receive a suspicious email, forward it to phishing@irs.gov. If you think you may have been a victim of this type of scam, you should report it to the IRS and FTC, notify the three major credit bureaus and consider identity theft protection.

2. Tax Return Preparation Fraud
There are dishonest tax preparers who can damage you financially. There have been reports of preparers keeping information from clients’ tax returns or charging very high fees for getting you a very high tax return. To protect yourself you should realize that not all tax preparers are honest and you should find someone with a good reputation to help you. The IRS will begin placing regulations on tax preparers in the future, which will hopefully help this problem.

3. “Frivolous Arguments to Avoid Paying Owed Taxes”

There are “frivolous schemes” that encourage people to not pay the taxes they owe. In this type of scheme, the scammer uses several arguments convinces the consumer that they don’t have to pay, such as:”paying taxes is voluntary” and filing 0 return means you won’t have to pay any taxes and “the first amendment allows individuals to refuse to pay taxes on religious or moral grounds.” You have to remember that these arguments are false and you still have to pay your taxes, no matter how convincing the scammer is.

4. “False Forms for Bigger Returns”

In some scams, an individual will file false information on their tax return in order to claim a refund they are not owed. In a bigger scheme, a tax preparer or scammer helps a tax payer file misleading information for a larger return (in exchange for a percentage of that return).

Always report everything 100 percent accurately on your tax return. IRS computers are becoming more and more sophisticated each year. They have a program that can compare your reported earnings against what your employer or contractor reported. The IRS also runs statistical analysis on your return to check for red flags.

Even if you have gotten away with these things in the past, do not assume that you can do it again the future as the IRS is becoming extremely proactive in preventing taxpayers from getting away with this in the future. If you have any uncertainty regarding the best way to report information, obtain assistance from someone knowledgeable.

5. Social Security Benefits that aren’t Taxable
Making any mistakes, accidental or intentional, when reporting on your Social Security Benefits “with excessive withholding” will result in a $5,000 fine. When you file this way, you end up without a reportable income to the IRS on a tax return. Often both the reported income and with-holding amount are incorrect. If you’re unsure of how to file this type, seek help from a professional to avoid making costly mistakes.

Remembering to pay attention and be wary of scams and deals that seem too good to be true can save you from being a victim of identity theft. If you have had problems with identity theft and have questions or concerns, feel free to contact us through our website or by calling 205-879-2447.

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