Tax scams: What to look out for when you're filing
Updated On: Apr 01 2013 06:48:25 PM CDT
The deadline to file your tax return is two weeks away, which means it's important to be aware of tax fraud.
Whether you're trying to swindle a few bucks out of Uncle Sam or you're the one being taken for a ride, tax fraud is punishable by law.
"It hurts our reputation and it hurts the individuals involved," said Hank Houser, who prepares taxes at Liberty Income Tax.
Houser says the most common fraud he sees involves individuals claiming dependents they don't have. Each dependent up to three comes with an extra credit, but Houser says that's an easy plot for the IRS to foil.
"(The IRS) ensures that we have other documentation to verify these children actually do live in the home," Houser explained.
A lot of taxpayers also try to fudge the numbers when it comes to earned income. Annual earnings between about $18,000 and $25,000 bring in the biggest returns. That type of fraud requires a lot of oversight on Houser's part.
"We will look at it. And we will take a dim view of trying to generate an improper return," Houser said.
It's not all about protecting the tax man. Taxpayers can be ripped off just the same, even by the tax preparer.
Houser said that some tax preparers will try to charge clients based on a percentage of the return. The IRS now encourages tax firms to charge a flat rate based on services rendered.
Then, there's good, old-fashioned identity theft.
"One of the biggest things I tell clients is, 'Never carry your social security card with you,'" Houser said.
The IRS has implemented a PIN number system for victims of identity theft. Houser says the system is effective, but for every new security measure, there's a new way to challenge it.
"People are very imaginative," Houser said.
Some other tax scams to watch for include fake charities. According to the IRS, If you're looking to get a tax deduction from a charitable donation, research the charitable organization and make your donation using a credit card or check. Never donate cash.
Phishing schemes are also common. If you get an email from someone seeking your personal information, the IRS says it's best to ignore the message and report it to email@example.com.
The IRS also warns of "free money" scams. If someone claiming to be a tax preparer promises extra money with little to no documentation, those claims are likely false.
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