Tax Scams and Mistakes You Can’t Afford
Common tax scams include everything from identity theft, phony collections to preparer fraud. All may be costly and frustrating. In addition, over 20% of tax filers wait until the last minute to file a return. Hurried last minute tax preparation can lead to costly mistakes and missed deductions. Whether you hire a professional tax service, use software, file online or via mail, it is important to make sure you understand the most common scams and mistakes.
- Not recognizing a tax scam until it is too late. Tax scams come in all shapes and sizes. Each year the IRS prepares a “Dirty Dozen” list of tax scams. For the fifth year in a row identity theft tops the list. If you fear you may be a victim of identity theft and you have an IDShield membership call (800) 806-3991. If you do not yet have an IDShield membership visitwww.idshield.com to learn more. Click here to find out what else tops the IRS list for 2016. The Canada Revenue Agency also offers resources for detecting tax scams and fraud. Click here to access the Canada Revenue Agency website.
- Failing to file and make payment on time. In the U.S. taxes are due on April 18th. In Canada returns are due by April 30th. The IRS does allow a six-month filing extension until October 17th. You must file Form 4868 before the April 18th deadline to request an extension. If you owe money, you will be subject to late fees if the full amount is not paid by April 18th. The Canadian Revenue Agency does not allow for late filing; however, if you cannot make your full payment you can avoid late-filing penalties if you file your return before the April 30th deadline.
- Last minute filing mistakes. Many individuals put off filing their taxes until the last minute. The cost of some tax preparation services may increase as filing deadlines approach. Disorganized late filers may pay late fees, miss out on key deductions or make mistakes. Online tax preparation and filing is a great way to complete your return quickly and with time to spare. You may even be eligible for free online filing if you meet certain income requirements (learn more U.S. and Canada).
- Failing to secure your tax return and other financial documents. Whether you file online or use a professional you must keep your personal information safe. Tax returns are a goldmine for identity thieves. Never store sensitive information on public computers or transmit financial information through unsecured WiFi. Also, keep paper copies of your return in a safe location.
- Claiming a deduction you cannot back up with proper documentation. Underpaying your taxes could subject you to costly fines and penalties. You must be able to show proof of your deductions in the event of an audit. Save copies of your return as well as all of the receipts and other documents you use to prepare your taxes. Keep the documents in a safe and accessible location.
- Hiring a dishonest or inept tax professional. There are many wonderful tax professionals who can help you file accurate and timely returns. Tax preparation services can be invaluable to businesses and individuals with complex personal finances. If you decide to utilize a professional tax preparer find someone you can trust and always make sure they sign your return. Taking a little extra time to look into your preparer before you hire them could save you a great deal of trouble. The IRS has a webpage to help you select a preparer and check his or her credentials.
Talk to an independent associate in your area who can walk you through all the plan options