The IRS says they are going after abusive tax shelters. So, how do you know if a strategy is legal or if it is an illegal scam? Read on for the five classic signs of an illegal scam.
Five Signs That You Might Have an Illegal Tax Scam:
(1) You must act right away
(2) It’s a secret
(3) No one else would understand
(4) It’s too good to be true
(5) You can’t have independent review
Contrast that with loopholes that are legal, ethical and moral!
(1) Loopholes follow public policy – own a business and invest in real estate
(2) Prove legal deductibility of expenses. Legal deductions are ordinary and necessary for your business
(3) Keep good records and current financial statements. They will support your deductions in case of audit and help you learn more about your business.
You don’t need to be afraid of the IRS, as long as you follow these three rules for loopholes. But, if you have a plan that doesn’t sound right and meets one or more of the five signs of an illegal scam, beware!