No one wants to pay more taxes than they are lawfully required to. But sometimes in their quest for lower taxes, many people will fall prey to many scams that promise a lower tax bill. In the end, these scams are always more trouble than they are worth.

My name is Drew Miles, and I am known as the Tax Savings Attorney. My goal is to help as many people lower their taxes to the absolute legal minimum, without any risk of facing problems with the IRS. I don't want anyone going through an audit or facing IRS penalties, so I want to show you a few common tax scams to look out for.

One of the most common scams comes from those who oppose any taxation by the IRS. They claim that there is no law requiring you to pay taxes, and they say that filing is voluntary. Whether or not the law is on their side, if you don't file your taxes, the IRS is going to come after you. A similar scam is to file a "zero return" claiming no income. This raises a huge red flag with the IRS, and is going to get you in trouble.

Another common scam comes from those who prepare your taxes, and claim they can greatly reduce your taxes or promise you a large refund. Dishonest return preparers can cause many headaches for taxpayers who fall victim to their schemes. Such preparers derive financial gain by skimming a portion of their clients' refunds and charging inflated fees for return preparation services.

Taxpayers should choose carefully when hiring a tax preparer. As the old saying goes, "If it sounds too good to be true, it probably is." And remember, no matter who prepares the return, the taxpayer is ultimately responsible for its accuracy. Since 2002, the courts have issued injunctions ordering dozens of individuals to cease preparing returns, and the Department of Justice has filed complaints against dozens of others. During fiscal year 2005, more than 110 tax return preparers were convicted of tax crimes.

One common scam involves offshore transactions. Individuals continue to try to avoid U.S. taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance to do so. The IRS and the tax agencies of U.S. states and possessions continue to aggressively pursue taxpayers and promoters involved in such abusive transactions. If you think that an offshore account is the ticket to lower taxes, you need to think again.

People always ask me "Drew Miles, with all these scams out there, how can I legally lower my taxes?" The short answer is by taking advantage of the overlooked legal tax deductions, which can drastically reduce your taxable income. The most powerful tax saving strategy you can use is to clearly understand the distinction between your personal and business expenses, and work to legally convert your largest personal expenses into legitimate business expenses. Its the small items that most preparers overlook that add up to big savings.

When you apply legal tax saving strategies to your finances, your taxes will not only be lower than if you had listened to any of these unscrupulous tax scammers, but you will not have to worry about being challenged by the IRS.

Learn the tax benefits of a Flexible-benefits Plan

Flexible-benefits Plan (FBP) is an employee benefits plan which helps the employees’ to save considerable amount of taxes by paying certain expenses from their pre-tax income.



Some of the eligible expenses from pre-tax income are medical, vision, dental, elder care, and dependent care. All state employees who get a regular paycheck are entitled to participate in the flexible-benefits plan. 


Flexible-benefits Plan mainly boasts three components:


- Health Flexible Spending Account (HFSA) - Dependent Care Reimbursement Account (DCRA) - Health insurance premium deduction


Flexible-benefits Plan’s reimbursements are made occasionally, mostly once in a week. You will receive statements which helps you to keep updated on your account. Quick information about your account can be accessed with the help of customer service line or email.


Due to the program’s tax exempt features, the federal government strictly regulates the Flexible-benefits Plan. FBPs are regulated by sections 125 and 129 of the Internal Revenue Code (IRS). Hence it is advisable to review the IRS rules before you enroll. If you wish to enroll in the FBP, then it is better from your part to discuss how the program may benefit you with your financial planner or tax advisor. 


How does a Flexible-benefits Plan work?


On enrolling in a flexible-benefits plan you first have to decide how much amount you need to earmark for your Dependent Care Reimbursement Account and/or Health Flexible Spending Account. After you have fixed a particular amount for your account, your employer will deduct the amount every month from your salary for the flexible-benefits plan. The deducted amount will be immediately credited to your accounts you have already specified. 


Reimbursement


Whenever you had met with an eligible expense, you can submit a claim for reimbursement. While submitting a claim, make sure that you have provided all necessary documents supporting your claim. Reimbursements are generally made weekly.


- Health Flexible Spending Account (HFSA)


While submitting a claim for reimbursement, first submit all your health care claims according to your health care plan. If there is any amount which is not covered according to your health care plan, you can claim those amounts for reimbursement with your Health Flexible Spending Account. While submitting a claim, make sure that you have provided a copy of an Explanation of Benefits (EOB) or your receipt together with your Flexible-benefits Plan Reimbursement Request.    - Dependent Care Reimbursement Account (DCRA)


You can submit a claim for your dependent care expenses by providing a copy of your receipt to a complete Flexible-Benefits Plan Reimbursement Request. You can also provide a complete Reimbursement Request signed by your dependent care provider.


Monitoring your account


It is advisable to keep a close eye on your account every time you make a claim or when ever you get a Flexible-Benefits Plan reimbursement check. Generally you will also obtain an Explanation of Benefits which displays your up-to-date details of deposits, the claims you had submitted, the claims you were paid, and the remaining amount you have in your account.


Besides this, you will be provided with an Account Status Report, in most cases three months before the end of your Flexible-Benefits Plan year. The report displays your total accounts and reminds you to submit any outstanding claims. This helps you to avoid any forfeiture.


Unused funds


According to the IRS regulations, you need to forfeit any unspent funds in your Flexible-Benefits Plan at the end of each plan year. Hence you must be very careful to plan your contributions and to make sure you have submitted request for all eligible reimbursements. Also make sure that you have submitted your request with all documentary proof. Keep in mind that it is always better to underestimate your eligible expenses than to overestimate them and risk forfeiture.

Jakob Jelling is the founder of http://www.cashbazar.com. Visit his website for the latest on personal finance, debt elimination, budgeting, credit cards and real estate.

IRS Obtains More Than 100 Injunctions Against Tax Scheme Promoters

The IRS announced today that it has obtained civil injunctions against more than 100 promoters of illegal tax avoidance schemes and fraudulent return preparers in an ongoing crackdown that began in 2001. Many of the injunctions, obtained in cooperation with the Department of Justice, also order the promoters to turn over client lists and to cease preparing federal income tax returns for others.



Signaling a renewed fight against tax fraud, the federal government stepped up the use of civil power four years ago. Civil injunctions have subsequently been used to stop:


1. Abusive trusts that shift assets out of a taxpayer’s name but retain that taxpayer’s control over the assets.

2. The misuse of “Corporation sole” laws to establish phony religious organizations.

3. Frivolous “Section 861” arguments used to evade employment taxes.

4. Claims of personal housing and living expenses as business deductions.

5. "Zero income” tax returns.

6. Abuse of the Disabled Access Credit.

7. The claim that only foreign-source income is taxable.


The IRS identifies abusive tax promoters through a variety of means, including ongoing examinations, Internet and media research or referrals from external sources such as tax professionals. If the findings of an investigation support a civil injunction, the IRS refers the case to the Department of Justice.


If the Justice Department concurs, it files suit against the promoter requesting that the court order the promoter to refrain from the fraudulent activity. Depending on the facts and circumstances of the case, the court may issue a temporary restraining order, a temporary injunction or a permanent injunction.


At present, the courts have issued injunctions against 99 abusive scheme promoters –– 81 permanent injunctions and 18 preliminary injunctions. They have issued permanent injunctions against 17 abusive return preparers. The Justice Department has filed an additional 49 suits seeking injunction action –– 28 against scheme promoters and 21 against return preparers.


The IRS is currently investigating more than 1,000 additional promoters for possible referral to the Justice Department and conducting individual examinations on thousands of tax scheme participants.

Richard Chapo is CEO of Business Tax Recovery - Obtaining tax refunds for small businesses for overpaid taxes. Discovery tax strategies and deductions in our tax articles section.

IRS Fails as a Tax Adviser

The Internal Revenue Service conducted a study of the quality of telephone advice it provides to taxpayers. It found that only 27% of callers actually received complete answers to their questions. Almost three quarters of callers were denied service, told to call back later, or had an excessive waiting time and simple hung up before speaking with a representative.

Of those few callers that received complete answers, the answers given by IRS representatives to tax law questions were correct only 50% of the time.

Taxpayers are often surprised to learn that they are not protected by relying on advise from an IRS employee. Only a private tax adviser can warranty the reliability of their advice, and the warranty is limited to the specific remedy offered by the adviser. This might be representation at no additional charge to resolve an issue in dispute or a return of the fee. A taxpayer can rarely be protected from tax liability due to incorrect advice.

Tony Novak is an independent writer and financial adviser in Narberth PA who provides OnlineAdviser services through MedSave.com and FreedomBenefits.org

How to minimize your taxes on wealth

Taxes on wealth or simply wealth tax is the tax levied on the value of wealth owned by a person. As the term ‘wealth’ carries with it a broader meaning, generally capital transfer taxes (which include inheritance tax and gift tax), property tax, and capital gains taxes are some times invariably referred to as wealth taxes.



Taxes on wealth were first introduced in Europe, aimed at reducing the growing wealth gap between the rich and the poor. It was meant to raise revenue for addressing pressing social requirements and also to discourage the attitude towards amassing wealth.


Still, in countries across the world, majority of wealth is concentrated at the hands of fairly small number of people. Ideally taxes on wealth cuts down the disparities in wealth rather than the income, which actually is the determinant factor on how the scales are weighed for the next generations. Also, taxes on wealth can bring about vertical as well as horizontal equity, which income tax fails to achieve. For example, neither a wealthy person nor a poor one with no income will pay income tax. But the wealthy ones need to cough up wealth tax while the poor need not. 


But, as critics puts down, taxes on wealth can actually cause inefficiency by discouraging wealth producing economic initiatives. Also, the revenue generated by imposing taxes on wealth may not be that productive as the theory suggests. The wealthiest form only a small percentage of the population and by nature they are adept at avoiding taxes while remaining themselves within the contours of law.


Taxes on wealth comes in two forms – the capital transfer taxes that are levied when wealth change hands and the annual wealth taxes. Capital transfer taxes can occur either at death – also called inheritance tax – or via donation (gift tax). Some people tend to believe that Capital Gains tax to be a form of taxes on wealth. But in realty, capital gains tax is the taxation on the income obtained on capital and not a wealth tax on the capital.


Ideally, taxes on wealth should not be severe on the tax payers even if they have lots of wealth. Instead, after the minimum slab of no taxation, the taxes on wealth percentage should increase at increments, depending on the value of wealth in dollars. Such a fairer taxation not only increases the revenue but also goes a long way in bringing down the inequality aspect as well.


But with intelligent investing, one can save a lot that other wise goes as wealth tax. But that requires careful thought and advanced planning. May be a tax professional could help one in this regard.

Jakob Jelling is the founder of http://www.cashbazar.com. Visit his website for the latest on personal finance, debt elimination, budgeting, credit cards and real estate.