Tax time stands as one of the most dangerous times for individuals and small businesses. Malicious individuals want to prey upon these groups in an attempt to scam them from their hard-earned cash or their deserved tax refunds.
Some even want to steal the sensitive information related to tax returns, such as employee identification numbers and social security numbers, so that they can commit identity theft.
The surprising part about all this is the amount of effort that these individuals will exert in an attempt to get your valuable information. You may be the target of one of these tax scams and about to fall for one of them.
Let's examine some signs that you are the target of one of these scams so that you can be ready to protect yourself and your business.
The Signs of a Scam
Businesses taxes are often targeted more often that the taxes of individuals. It's because they contain so much more information and that they're worth so much more on a per-basis reward for scammers.
If you're not careful, then you could be ready to fall for one of these scams.
The general architecture of a scam hinges upon the human component of your accounting. Individuals may call demanding payment, order you to wire money to them, require credit card or debit numbers, or even threaten you with action from law enforcement.
The common thread with these scams is that they each hinge upon frightening you or persuading you that you've done something wrong. So long as you've had a qualified CPA perform your taxes, you should have little to nothing to fear.
If you've done your business's taxes by yourself and followed the IRS's directions, then you should be fine. Don't let yourself be fooled by these scams.
The Most Popular Tax Scams
In an attempt to help you learn to identify and protect yourself from the many tax scams that have popped up this year, let's take a look at the most popular scams. We'll inspect how they work and what red signs they present.
1. Impersonating Phone Calls
Criminals have been using telephones for scams almost as long as two telephones have been connected to one another. Tax scams are much more dangerous, as these individuals are utilizing more serious threats to scare small businesses into complying with their demands.
They may threaten to call the police or resort to serious legal action. They may require that you send them funds immediately to prevent something bad from happening.
The red flag in this situation is that they're calling your phone. The IRS will generally send you written notification if there is a problem.
2. Phishing
Some scams will send you a form to fill out with your personal information. These forms will look like they're from the IRS, and you may receive them via email or mail.
The red flags in this situation pertain to the method of contact. The IRS will never send you emails, and any mail you receive will always be from the IRS.
If you receive such a document, don't be afraid to contact the IRS to verify the authenticity of the documents. Apprehension is the first step to tax protection.
3. Identity Theft
Malicious individuals will steal another business's or person's tax ID. They will then use it to file false taxes, which in turn could get that entity in serious trouble.
The major red flag here is that the IRS will seldom ask you to verify your tax ID. They should already have it in their records or on your taxes, assuming that you have filed them already.
If anyone ever asks you to verify your tax ID, ensure that they are from the IRS. Don't be afraid to call the IRS to verify.
4. Fake Return Preparers
You need to be able to trust the person whom prepares your tax returns. Suspicious individuals whom promise better returns or “amazing rates” may be falsifying you information or trying to steal your returns from you.
If your tax preparer sounds too good to be true, moves around often or doesn't have a record of other clients that they've helped, then you should stay away from them. Opt for a professional instead.
5. Offshore Assets for Tax Avoidance
Storing assets offshore has long been one of the most prominent strategies for avoiding taxes, but the IRS has cracked down on income and assets stored offshore.
If someone tries to encourage you to move your assets offshore, then they may be waiting for the opportune moment to steal those assets. If this occurs, then you may have no recourse for recovering what was lost.
6. Inflated Tax Refunds
Blank tax returns are dangerous, because they allow anyone to fill out the return amount. This can cause an incredible amount of trouble for you.
Don't sign anything if there's a blank amount. Individuals whom ask you to do this are likely trying to scam you.
7. Fake Charities to Avoid Taxes
Another prominent strategy of avoiding taxes is to use fake charities. People whom suggest to use these charities are likely trying to steal your hard-earned money.
8. Fake Documents, Information or Income Statements
Filing false information on your tax return or utilizing fake documents is a crime. If anyone suggests that you should do so, then they're likely trying to scam you out of information, your money or both.
9. Excessive Fuel Tax Credit Claims
The fuel tax credit available for businesses and individuals to use often has a limit on it. Even farmers can only claim so much for their fuel tax credit when they file business taxes.
Anyone whom suggests that you inflate your fuel tax credits may be trying to make you the center of a tax scam.
10. Utilizing Any Other forms of Tax Avoidance
Tax avoidance sometimes works, but it is illegal. You can be prosecuted if you are caught, which is why any professional will recommend that you avoid trying to use any form of tax avoidance.
Abusive tax shelters, complicated avoidance schemes and any other strategy to circumvent how much your businesses owes for taxes will likely be suggested by people trying to run tax scams. Avoid these people and strategies at all costs.
Are You the Target of Tax Scams?
You should be familiar with a large variety of popular tax scams along with the various ways that they work. Recognizing red flags will help you spot if you're being targeted by tax scams.
If you ever arrive at a point where you have even a shred of a doubt that a document or a notice is from the IRS, then don't be afraid to call before you make a mistake. You can call the IRS at 1-800-829-1040 to have a qualified worker help you with most of the issues that you might have.