One scheme involves home-based businesses. Promoters will tell you that you can deduct most personal expenses as business expenses by setting up a bogus home-based business. Examples include deducting the costs of "operating" your personal residence, deducting personal travel and meals by claiming "continuous solicitation," and deducting a "salary" you pay your children for performing routine chores around the house.
Operators of another scheme tell employers that it is legal to stop withholding taxes from employee wages and that employees do not have to report their wage income. Another scam explains how to avoid taxes by investing funds in foreign bank accounts, foreign insurance companies, or foreign trusts. Yet another has individuals establishing "personal charities" to which they deduct contributions in support of themselves.
Some scam artists sell their tax avoidance "secrets." Others offer to file a tax-refund claim in exchange for an up-front fee. Still others sell products that falsely promise big tax breaks, such as bogus business kits, abusive trust packages, or expensive equipment.
The IRS and Congress are aware of these scams and law enforcement agencies are stepping up action to curb their spread. You shouldn't believe claims made by these con artists that tax avoidance schemes are legitimate. Be aware that you stand to lose more than the money you send to these scam artists. Falling for these illegal tax scams may subject you to civil and criminal penalties.
<> Tax Tips is provided by Joe Buckley, a certified public accountant in Homer. He can be reached at 235-6711.