Simple mistakes…There are a few common deductions and credits that get people into trouble when they file them on their tax return. I would like to go over a few of the most common ones with you to make sure you can avoid the common mistakes far too many Americans make.

Child tax credit: This is one of the most common. There are a couple of requirements that you have to meet and prove to the IRS before you can claim a child as a dependent. First the child must be related to you in some way, or you are the child’s legal guardian. Second you must prove that you took care of the child for six months of the tax year in question.

Charitable Donations: When I talk about charitable donations I’m not talking about the clothes you donated to the thrift store. I’m talking about big donations. If you’ve made a charitable donation of more than $500.00 you have to not only have a receipt, you have to have a signed document from the organization that you donated to proving that your donation was legitimate.

Business Deductions: This one trips up the small and independent business owners all the time. The IRS is picky about what is considered a business expense and what is personal. If you’re buying equipment or office furniture make sure to keep the receipts. You also have to prove that the purchases are important to the running of the business. For example, buying extra computers for a growing staff is a legitimate write off. However purchasing an antique desk for your office because it impresses clients is considered a luxury and does not qualify as a business expense.

The same holds true for travel expenses. Again, not only do you need your receipts you need to prove that the travel expenses are for business purposes only!

And that’s not all…I want to make you aware that these are only a few examples of potential deductions or credits that can turn a tax refund into a tax debt. When trying to claim any deduction or credit always make sure that you have receipts and other documentation to back up your tax return. And use common sense; if you have any doubt about claiming something; do the research and make sure before you send in your tax return.

Now you have the smoking gun…Use it!

Richard Close was an IRS-Hitman. He was a revenue officer who took out anyone that owed the IRS money. He left that behind and now helps thousands of Americans beat Uncle Sam and save thousands of dollars. The IRS-Hitman can help you with your tax debt problems. He offers free advice and tips on removing wage garnishments and bank levies; and arms you with the skills to slash your tax debt: Visit at: http://irs-hitman.blogspot.com or http://www.taxdefensenetwork.com or contact: email irs-hitman@taxdefensenetwork.com or 1-888-248-9058.

They are seeking substantial taxes and penalties from what they characterize as “abusive plans,” but they do not regard all 412(i) plans as necessarily abusive. A properly structured and administered 412(i) plan can be an invaluable tax reduction tool for a business, but care must be taken.

In addition, the IRS is stepping up its examinations of companies’ retirement plans this year, aiming to catch those that are cheating their workers or the government, and to ensure that the plans meet federal regulations. The offerings to be examined include traditional pensions, 401(k)s and profit-sharing plans.

A few years ago, when I spoke at the national convention of the American Society of Pension Professionals and Actuaries about VEBAs, the IRS spoke about their 412(i) concerns. Since then, they have escalated their challenges to “abusive” 412(i) plans. In fact, certain plans are on the IRS list of abusive tax transactions.

Taxpayers who participate in “listed transactions” are required to report them to the IRS or face substantial penalties ($100,000 in the case of individuals, and $200,000 in the case of entities). In addition, “material advisors” to these plans are required to maintain certain records and turn them over to the IRS on demand.

When I addressed the 2005 annual convention of the National Society of Public Accountants, the IRS spoke about Circular 230. My impression was that if an accountant signed a tax return that disclosed involvement in a listed and/or abusive tax transaction, there could be Circular 230 implications.

Most accountants are not familiar with 412(i) plans. They are a type of defined-benefit pension plan that allows a large contribution. The funding vehicles are usually fixed annuities and fixed life insurance. They are traditionally sold by life insurance professionals and financial planners. However, in recent years, they have gained in popularity.

Given the substantial taxes and penalties that may be assessed if the IRS concludes that a 412(i) plan has not been properly structured or administered, The IRS is aiming to catch companies that are cheating their workers or the government. especially if it concludes that the plan is a listed transaction, it is important that the taxpayer know the rules.

The accountant should also be aware of them. The fact that a plan is being sold by an insurance company does not make it safer. Recently the IRS has taken action against plans sold by insurance companies.

Lance Wallach speaks and writes extensively about VEBAs, 412(i) plans, retirement plans, tax reduction strategies, and estate planning. For more information, visit http://www.vebaplan.com or call (516)938-5007.