Tax Shelters to Steer Clear of To avoid trouble, stay away from these tax shelters.
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Many entrepreneurs may not be getting sound tax advice from their financial advisors. Beware of these abusive tax shelters--no matter how a financial advisor may spin them, they're still illegal.
1. Setting up a new entity and transferring assets into it to avoiding paying income taxes: This is tax evasion. Surprisingly, business owners still buy into this advice from shady financial advisors. The most recent scheme the IRS successfully prosecuted netted almost $4 billion in settlements and involved about 750 corporate executives. The scam was sold mostly to corporate executives, who transferred their stock options to a family-controlled partnership, thereby avoiding income tax liability.
2. Buying an investment that promises to generate a loss solely to offset ordinary income: For example, you cannot invest money in exploring and drilling for oil--with no intention of finding any-then write off more than you spent.