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Taxpayers may wind up paying for mistakes later

When individuals complete their personal or business taxes, they are often interested in minimizing their tax obligation. However, some Boston taxpayers may not be completing their tax returns in an honest manner. This can result in Boston taxpayers receiving a refund or smaller tax debt now, but being subject to tax audits and paying a larger tax amount with interest and fees later.

Underreporting earnings is one significant problem for business owners. Some business owners may try to underreport their business income so that they will not owe taxes if they are not showing a profit. However, taking this step may later make it difficult when the business owner is seeking financing or investments because these parties see the same negative figures as the Internal Revenue Service. Some business owners take the potential for tax savings a step further by drafting complicated documents that require business owners to sell back their shares to the company at the current value of the shares. Additionally, business owners may create nonqualified deferred compensation plans to individuals who depart the company. While these strategies may make payments to shareholders tax deductible, it can have a negative impact on the shareholders and the business. The Internal Revenue Service may investigate the tax deduction and the shareholder will be taxed on ordinary income rather than on a capital gain.

Another area where many individuals try to save on taxes is with estate and gift taxes. Some individuals may lose control of their interest by putting it in a trust. Taking this step may mean that individuals give up their right to vote for maters pertaining to a family business.

Individuals who are working through their taxes to look for savings may wish to speak to a Boston tax attorney. This individual may be able to advise them about ways to save without facing long-term consequences.

Source: Forbes, "Taxes: Paying Less Now May Cost You More Later", Steve Parrish, May 08, 2013

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