Top Troubling Tax Schemes For Doctors and Businesses

Every year doctors and business owners fall into the trap of creating tax schemes that could get them into trouble with the IRS. Doctor and business owners need to know the following things to help protect themselves in the event someone tries to sell them a frivolous tax plan. First, a good CPA can help a doctor or business owner strictly adhere to the tax code. Second, doctors and business owners should be cautious when an adviser suggests the following things as a means of reducing tax liability:

• Be wary of advice to hide income in an offshore account for tax purposes. While hiding income in an offshore account can protect assets from creditors, the income placed there is still taxable.
• Be wary of the use of frivolous arrangements that are without precedent to support a tax scheme. 
• Do not fund your retirement in a manner that violates the tax code. Be wary of advisers who claim you can shift appreciated assets at less than their fair market value to IRAs. Taxpayers often choose to do this to avoid the contribution limitations that are placed on IRAs.
• Do not create corporations or other similar legal entities to avoid paying taxes. Taxpayers who choose this type of tax planning schemes could become subject to severe civil and criminal penalties. Many taxpayers have used these entities to under-report income, take unlawful deductions, and not file a tax return. Be aware that even though you may not be purposely committing tax fraud, as the owner, you would still receive all the penalties of this plan. To prevent this from happening to you, make sure you know what is going on in your business, and make sure to accurately list all your deductions. For example, one common mistake is that businesses take deductions when you are using your business property for personal use.

See Ike Devji, Tax Planning Schemes Every Physician (and Business Owner) Should Avoid, Physicians Practice, Mar. 16, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.