According to the IRS, the number of tax scams has already jumped 400 percent during the current filing season, for tax year 2016, compared to last year. As tax day nears, the IRS has issued warnings about the growing threat of tax scams.
In an urgent letter published this month on IRS.gov, the federal agency warned businesses and individuals about "new and evolving phishing schemes." The IRS said it saw email phishing schemes targeting tax professionals, payroll and HR departments, schools, restaurants, hospitals, non-profits, and individual taxpayers.
10 ridiculous tax loopholes
10 ridiculous tax loopholes
1. Alaskan Whaling Captain Deduction
Alaskan whaling captains can avoid tax on up to $10,000 of whaling-related expenses per year. Costs they can deduct include purchasing and maintaining the boat, weapons and gear, food and supplies for the crew, and storing and distributing the catch.
When a business pays for capital improvements — like building a new office or buying a new machine — it typically deducts those costs over the life of the asset, which could translate into decades. A special exception exists in the tax code for “certain motorsports entertainment complex property placed into service before Jan. 1, 2017,” which refers to NASCAR tracks and other racing facilities. The exception allows businesses to deduct the costs over seven years, which is much faster than usual.
(Onfokus via Getty Images)
3. Hawaii’s Exceptional Tree Deduction
If you take care of an “exceptional tree” in Hawaii, you can deduct up to $3,000 on your state taxes of what it costs you. A local county arborist advisory committee must declare it an exceptional tree and you’ll need an affidavit from the arborist stating the tree’s type and location and what you paid to maintain it. You can take this deduction only once every three years.
(agaliza via Getty Images)
4. Florida’s Rent-a-Cow Deduction
If you live in Florida and want to pay lower property taxes — perhaps on your second home that has a lot of open land — consider renting some cows. Under greenbelt laws, if you use your land for agricultural purposes, your real estate taxes are based on the agricultural value of the land, not its market value.
This deduction doesn’t explicitly state how many cows you have to raise or even that you have to own them. Developers often let a few dozen rented cows roam their land — sometimes even during construction — to lower their property tax bills.
5. New Mexico’s Centenarian Deduction
If you live to be 100 years old, moving to New Mexico will cut your tax bill because you will pay no tax to the state. A caveat: You cannot take the deduction if you claim someone as a dependent. Paying no state income tax might not be a huge break, but if it’s available, take it.
(gece33 via Getty Images)
6. Qualified Performing Artist Deduction
If you’re searching for a tax loophole you can use — one that doesn’t benefit only the 1 percent — the IRS allows qualified performing artists to deduct certain expenses. To qualify, you must have performed for at least two different employers during the year and received at least $200 from each, had business expenses that exceeded 10 percent of your performing arts income and claimed less than $16,000 in adjusted gross income for the year. If you’re married, that $16,000 limit applies to both your spouse’s and your incomes.
(DragonImages via Getty Images)
7. Home Landscaping Deduction
If you regularly see clients at your home office, you might be able to write off a portion of your landscaping costs. The IRS allows a deduction for the portion of your home costs that are related to your home office, so as long as you use your home office exclusively for business, you might be able to take this one. If keeping your lawn looking good for your clients is part of the job, you’re in luck.
(Elenathewise via Getty Images)
8. Personal Pool Deduction
Install a pool for medical treatments and you could be in for a big tax break. One taxpayer suffering from emphysema and bronchitis was prescribed swimming by his doctor as part of his treatment, so he built a pool and wrote off a portion of the costs as a medical expense. He could deduct only the amount by which the installation cost exceeded the home’s increase in value, but he did get to include upkeep costs.
Deducting body oil on your taxes might sound downright crazy, but you might be able to. One professional bodybuilder needed to shine a little brighter during competition so he applied body oil. When tax season rolled around, he included the cost as a business expense. At first, the IRS disallowed the deduction, but the Tax Court approved because using the oil made him more competitive.
(bekisha via Getty Images)
10. Charity Meat Deduction
Meat packers, butchers and processing plants in South Carolina can earn a $75 state tax credit for each deer carcass they process and donate. You must be licensed with the state or the U.S. Department of Agriculture and you must have a contract with a qualified nonprofit that distributes food to the needy. If you use any of the deer for commercial purposes, you will not qualify for the donation.
The most common way crooks steal W-2s is through email phishing schemes, the IRS says. These types of attacks are simple: hackers use a little social engineering and spoof a CEO's or CFO's email address and send a request to an employee in payroll asking for a PDF of all employees' W-2s. The decidedly low-tech method has been duping employees from all types of companies. Last year, data storage firm Seagate, social media platform Snapchat, payday lender Moneytree, and even Inc. magazine's parent company all got hit.
According to the Department of Justice, stolen identity tax refund fraud has affected hundreds of thousands of taxpayers and has cost the United States Treasury billions of dollars.
Employment or tax-related fraud was the most common form of reported identity theft in the U.S. from 2014 through 2016, according to a Federal Trade Commission report released March 2017. Employment- or tax-related fraud made up 34 percent of all types of reported cases over the last two years.
Already this year, 137 companies and organizations have fallen victim to W-2 phishing scams, according to Databreaches.net.
"These email schemes continue to evolve and can fool even the most cautious person. Email messages can look like they come from the IRS or others in the tax community," said IRS Commissioner John Koskinen in a statement. "Taxpayers should avoid opening surprise emails or clicking on web links claiming to be from the IRS."
Like most things in life, the IRS says if it seems too good to be true, it probably is. The agency says to watch out and don't be fooled by unexpected emails about big refunds, tax bills, or requests for personal information.
If you're going through a divorce, taxes may be the last thing on your mind, so we're here to help. We've got tips for you on which filing status to choose after the divorce, who can claim the exemptions for the kids, and how payments to an ex-spouse are treated for tax purposes.
Filing taxes as a single parent requires coordination between you and your ex-spouse or partner. Usually the custodial parent claims the child as a dependent, but there are exceptions. A single parent is allowed to claim applicable deductions and exemptions for each qualifying child. Even though you claim your child as a dependent, she may still have to file her own tax return if she has income, such as from an after-school job.
The Child Tax Credit can reduce your tax bill by as much as $1,000 per child, if you meet all seven requirements: 1. age, 2. relationship, 3. support, 4. dependent status, 5. citizenship, 6. length of residency and 7. family income. You and/or your child must pass all seven to claim this tax credit.