Tax Help Tips: Unlawful Deductions Can Cost You More Money in Penalties Than It Can “Save You”

If you’re a self-employed taxpayer this tax season, you need to beware of what you claim in your deductions to avoid severe IRS penalties.

The economy is tough, which means a lot of taxpayers may be tempted to “cut corners” by understating their actual income to save on tax money. This is a terrible idea. The IRS penalties you are likely to incur from your unlawful deductions is not worth the money you think you are saving.

CCH (http://intelliconnect.cch.com) reports:

Self-Employed Income Improperly Passed Through Sham Entities and Reduced by Unsubstantiated Deductions; Liability for Tax Deficiencies and Penalties Upheld

A married couple was properly held liable for tax deficiencies and substantial understatement penalties arising out of improper reductions of the husband’s reported self-employed income earned from his pipe inspection business. However, the issue of whether the tax deficiency erroneously excluded an allowable legal expenses deduction was remanded for recalculation. The husband’s self-employed income was improperly passed through sham entities and was reduced by deductions that were not attributable to cattle-raising expenses or any other documented business expense. The purported cattle-raising enterprise was not recognized as a bona fide profit-seeking business that could support income deductions from the husband’s self-employed income.

If you are claiming deductions on your tax returns, make sure that you have the right documents to back up your numbers. Careful document-keeping and claiming legitimate deductions are great ways to stay out of IRS trouble. Don’t gamble with your financial well-being; pay what you truly owe or you may end up paying much more.

Learn more about how you can stay out of IRS trouble this tax season by claiming acceptable deductions.

For those who are in IRS crosshairs, you can get tax help from a tax attorney, CPA, or Certified Tax Resolution Specialist. Call Tax Resolution Services at 1-866-IRS-PROBLEMS for a free tax resolution consultation or visit www.taxresolution.com.

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