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What Small Business Owners Need to Know About the IRS 2018 Dirty Dozen Tax Scams

Every year, the Internal Revenue Service releases its Dirty Dozen tax scams – a list of potential pitfalls that individuals and businesses alike need to watch out for come tax season.

But the warnings go both ways.

The IRS provides advice about potential threats to people’s tax returns and personally identifiable information, and tips on how to protect yourself. But it also warns taxpayers about certain temptations they might face when it comes tax time – say, the temptation to shortchange the IRS to secure a better return for yourself or your business.

So, what does the IRS have to say this year? Here’s a look at five of the IRS 2018 Dirty Dozen tax scams that small businesses should focus on.

5 Tax Scams to Avoid

1. Padding Deductions: One of the broadest suggestions the IRS has for taxpayers this year is to not inflate deductions and expenses just to lighten the load on your annual returns. Some people may feel tempted to do this on their own, and in some cases, unscrupulous tax preparers might even suggest doing this to maximize your return. But the consequences are severe. Penalties for filing incorrect returns can include a flat $5,000 for a “frivolous tax return,” as well as heavy percentage-based fines based on the scale of the fraud. Moreover, taxpayers can even be prosecuted and tried for providing false information.

2. Improper Business-Credit Claims: Along the same lines, the IRS warns businesses to be wary of return preparers who misuse certain business tax credits – specifically, the research and fuel tax credits. The IRS says that, per the research credit, it often gets false claims that “involve a failure to participate in or substantiate qualified research activities and/or a failure to satisfy the requirements related to qualified research expenses.” And concerning the fuel-tax credit, the IRS points out that “the credit is not available to most taxpayers,” yet it’s still a favorite among preparers trying to work their way into larger returns.

3. Identity Theft: The IRS says the “number of taxpayers reporting themselves as identify theft victims declined by 40 percent in 2017 from 2016.” That’s a credit to the hard work of the IRS in cooperation with tax professionals and state governments. Nonetheless, the IRS still is warning taxpayers about the “widespread” occurrence of tax-related identity theft. The IRS recommends always using firewalls and antivirus protections on any systems that handle your tax information. Also, don’t forget physical protection, such as keeping physical tax records safe and never carrying a Social Security card with you, as you could lose it.

4. Phishing Schemes: Part and parcel of avoiding identity theft is recognizing and avoiding phishing schemes – essentially emails or calls in which someone pretends to be from a government entity, or a tax professional, in hopes of tricking you into providing sensitive information. The IRS actually details a specific scam in this year’s warning:

“In a recent twist to a phishing scam, the IRS has seen thousands of taxpayers victimized by an unusual scheme that involves their own bank accounts. After stealing client data from tax professionals and filing fraudulent tax returns, the criminals use taxpayers’ real bank accounts to direct deposit refunds. Thieves are then using various tactics to reclaim the refund from the taxpayers, including falsely claiming to be from a collection agency or representing the IRS. Phone calls, emails and web sites are used to make the scheme more elaborate. Versions of the scam may continue to evolve. The IRS encourages taxpayers to review some basic tips if they see an unexpected deposit in their bank account.”

5. Disreputable Tax Preparers: Even if you’re as honest as they come, you could end up being at risk of tax fraud by choosing the wrong tax preparer. That’s why the IRS provides several tips to help you avoid disreputable preparers and even outright fraudsters. For instance, ask for a Preparer Tax Identification Number, ask for credentials and check qualifications via the IRS Directory of Federal Tax Return Preparers With Credentials and Select Qualifications.

One sure way to avoid tax-return ne’er-do-wells is to seek out the expertise of the tax professionals at McManamon & Co. We offer a wide variety of offerings for small and mid-size businesses, including accounting, fraud, forensic, consulting and tax services. Our tax professionals can prepare and file returns while keeping you and your business compliant, and even devise strategies that will help you lower your tax liabilities while remaining well within the IRS’ good graces.

Avoid the IRS Dirty Dozen and any other potential tax landmines. Call McManamon & Co. at 440.892.9088 or contact us online for a complete tax solution you can depend on year-in and year-out.


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