Consumers who gave the federal government an interest-free loan for up to a year during 2007-2008 have undoubtedly filed for and may have even received their refund check by now.
Two words: Stop that!
There is absolutely no need for any consumer to receive a substantial income tax refund. Please consult with a tax professional if you are one of those people who consistently receive a refund. Many consumers we have talked with tell us that they view these refunds as “savings” and “found money” that they get every spring for big bills.
Nonsense.
That money is yours, and you received no interest or other compensation. Even if you receive a $1,200 refund, that means that you could have brought home an extra $100 each month during 2007. If you’re carrying credit card or other debt and also receiving a refund, you’ve lost twice — the government took more of your money without paying interest, and you paid interest on money you had borrowed.
Find an accountant or tax advisor.
For those of you who are waiting to file during the last 200 hours of the regular season, the Internal Revenue Service issued its “Dirty Dozen” list of scams targeting taxpayers. As befits any IRS document, there are too many words, so let’s boil it down fast so you can get back to finding those receipts:
1. Phishing - This is the scam where you get email that looks like it’s from one organization, but it really isn’t. The solution is simple, especially with financial and other personal email. Open your browser and type the organization’s address in, along with any extensions you found in the email.
2. Stimulus Payment Questions - You may have heard that you’re due a check in May or June if you paid federal income tax in 2007. This so-called “stimulus” payment is automatic. You don’t have to do anything, and you should run away from anyone who tells you they need information to process yours.
3. Frivolous Arguments - Very simply, you have to pay federal income taxes. If you don’t, your tax professional will explain why. Verify that person’s explanation with the IRS.
4. Fuel Tax Credit - Best left for professionals or the IRS Help Line. If you don’t understand the intricacies, don’t try at home with a calculator with keys sticky from Saturday morning pancake syrup.
5. Hiding Money Offshore - If you’re in that financial demographic and reading this blog, have we got a deal for you. Write us. We’ll help you invest wisely.
6. Avoiding Roth IRA Limits - Does the deal sound too good to be true? It probably is, especially if a financial consultant just told you that they can avoid the federal IRA limits.
7. Sending A “Corrected” W2 or 1099 - Yes, you’re going to get caught. No, the people who work at the IRS are not that dumb. If you have a W2 that claims $X and you try lowering your taxes by submitting a “corrected” form, you will indeed face a form of corrections.
8. Abatement Requests - If you don’t know, don’t ask. If you’re told you should, ask a second professional. (Are you sensing a theme?)
9. Tax Preparer Scams - There are good and bad people in every professional. A nice office or brand name from a national chain is meaningless. Check with your local or state government agencies before entrusting your financial future to a stranger.
10. Forming “Shell” Companies - Not the gas station, but a bogus corporate entity that lets you shift income around when it is really personally taxable. Yep, they know this one too.
11. Misuse of Trusts - There is a very legitimate financial need to use trusts in estate and financial planning. Be sure your financial planner and tax advisor are on the same page and understand. Don’t unintentionally make a mistake by trusting someone who didn’t know the full picture.
12. Charitable Donations - The IRS specifically singled out the notion of taxpayers disguising private school tuition payments as charitable donations. That’s pretty slick and pretty stupid. Here is the deal on charity: read the rules. If you’re not preparing your taxes, don’t overstate the condition, original cost or value of items you’ve donated. Get a detailed receipt. Take pictures. Do what you need to do to prove your donation.
We’re not tax or financial professionals. This is merely a synthesis of a news item the Internal Revenue Service shared with taxpayers. If you have questions or concerns, contact your local IRS office or talk with a tax professional.
Posted under Finance
This post was written by George Bounacos on April 7, 2008
