CONSTRUCTION Accounting ARTICLE -
3 Tax-Related Scams and Mistakes to Avoid
Target Audience: Construction Industry Professionals, Business Owners, Project Managers, Contractors, Construction Accountants
Earlier this year, the IRS issued its annual list of common tax scams, covering everything from identity theft traps to serious mistakes taxpayers can make that the IRS may deem to be frivolous tax claims. Here are three to be sure to avoid:
1. Phishing. In a phishing scam, hackers deceive their victims into revealing personal and financial information over the Internet. A common tax-related scam involves an e-mail that appears to be from a reputable authority, such as the IRS, asking the recipient to reveal private financial data.
How can you tell whether you’re being duped? The IRS would never use e-mail to contact you about tax issues — nor will it ask you to submit any personal information via e-mail. If you’re at all suspicious of any tax-related e-mail you receive, forward the message to phishing@irs.gov.
2. Misuse of trusts. You may have encountered this one before: A random “financial advisor” encourages you to transfer your construction company’s assets into a trust to reduce your taxes.
Often, this promise isn’t as beneficial as it first seems, because not all trusts deliver the promised tax benefits. For example, the IRS may characterize the misuse of a private annuity trust as a means of avoiding income tax liability and levy penalties on you. And, of course, the promise may even be an attempt at outright theft. Your best bet is to talk to your CPA and attorney before establishing any sort of trust.
3. Fraudulent fuel tax credit claims. Some taxpayers, including contractors who use nonhighway vehicles such as golf carts or those who buy fuel for stationary engines, may be eligible for the fuel tax credit. This tax break amounts to a credit or refund of the federal excise tax placed on gasoline, clear diesel fuel and clear kerosene.
Some taxpayers, however, have been claiming the credit for fuel usage that doesn’t qualify for the credit. Beware: The IRS may deem this a frivolous tax claim subject to a $5,000 penalty. Because you may be eligible for the fuel tax credit in some capacity, talk to your CPA about which type of fuel usage you can correctly claim under the credit and avoid any penalties.
More information on common tax scams and mistakes can be found at irs.gov. Take some time to learn how (and to teach your employees how) to avoid serious scams and inadvertent errors that could hurt your construction company’s bottom line.
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