3 Tax Schemes to Avoid

There's a tax pitch making the rounds right now that promises 5 dollars of deduction for every 1 dollar you put in. A 5-to-1 increase.

Put in $50,000, deduct $250,000. It looks super polished, it comes with paperwork and supporting tax law, and it's usually delivered by some type of “professional”.

The IRS just put this strategy on their Dirty Dozen list - that’s the 12 schemes they're actively hunting this year. This is the list you want to avoid.

My name is Nathan Donohue, and I’ve spent over 15 years advising high-earning clients on tax, estate, and investment strategies.

Today I'm walking through 3 tax strategies that folks should avoid. Don’t walk, RUN! And be sure to stick around for the third, because unlike the other two, the third one is completely legal but still burns people.

Let's start with the 5-to-1 donation, because it's the most seductive. Promoters call it a “leveraged charitable donation”.

Let’s walk through a hypothetical example. You put in $50,000 cash. The promoter uses it to acquire assets in bulk at a steep discount. Think surplus medical supplies, pharmaceuticals, or other equipment. Then an appraiser values those assets at $250,000, you donate them to a charity, and you claim a $250,000 deduction.

If all or most of your income falls in the 35% marginal bracket, that deduction could be worth roughly $87,500 in federal tax savings, depending on your full tax picture.

You put in 50. But the paperwork says you gave 250. And you could save 87.5 in taxes. The tax savings alone could exceed what you spent!

Slow down and ask one question. If those assets were really worth $250,000, why did they sell for $50,000?

That question is the whole scheme. The deduction rests entirely on the appraisal, and the appraisal was arranged by the person selling you the deal. The IRS's 2026 Dirty Dozen list calls this out as: non-cash charitable contribution schemes built on inflated appraisals, including syndicated conservation easements and donated art, with promoters promising to eliminate or substantially reduce tax liability.

Here's what else the pitch tends to leave out. When a claimed value turns out to be at least double the real one, the tax code has a specific penalty for it: a 40% accuracy-related penalty on the underpayment, on top of paying back the tax itself - plus interest.

For overvalued charitable donations at that level, the usual good-faith defenses generally aren't available. Remember the person who signed the return is you. The promoter collected fees. The appraiser collected fees. You collected an exhaustive IRS audit.

In my experience, the people who get pulled into these aren't reckless. They're successful people having their biggest income year, staring at their biggest tax bill, and someone shows up with a professional-looking answer at exactly the right moment. A big RSU year makes you the target audience.

That scheme required a promoter to find you. The second scheme doesn't wait. It comes through your phone.

The IRS's 2026 Dirty Dozen list also names misleading tax advice on social media, and if your algorithm knows you’re a high-income earner, you've likely already seen it.

“Open an LLC and write off your car. Pay your kids to model for the family Christmas card and fund their Roth IRA. Claim a self-employment tax credit….”

Here's the mechanic underneath all of these. A deduction generally requires an actual trade or business and expenses that are ordinary and necessary for it. An LLC is just a legal wrapper. It doesn’t magically transform your commute, your phone, or your vacation into qualified “business expenses”. Forming one does not change the tax treatment of the W-2 wages your employer already reported.

Remember that the people posting these videos face no consequences when you get audited.

Those first two are easy to identify once you know what to look for. The third one is harder, because it's actually in the tax code.

It's the short-term rental pitch. Buy a rental property, run a cost segregation study, front-load years of depreciation into year one, and use the losses to wipe out the tax on your W-2 income. Unlike the first two, there's a real strategy in there.

Rental losses are generally passive, and passive losses generally can't offset your wages. But when a property's average guest stay is 7 days or less, the tax rules generally treat it as a business rather than a rental. If, and this is the BIG if, you materially participate in running the property.

Material participation means real, documented hours actually operating the property. Managing guests, cleaning, maintenance, bookings. Handing these duties off to a property manager make it much harder to meet the requirements.

The pitch also tends to skip depreciation recapture tax when you sell, and the small detail that you now operate a hospitality business with guests texting you about the Wi-Fi at midnight.

So the strategy is real. What's mis-sold is the price. The deduction is paid for with a second job and real economic risk. And if the economics of the property don't work on their own, the write-off might not make it worth it.

So here's the pattern across all 3. Real tax planning starts with something true about your life - a charity you already care about, a business you actually run. The schemes run the other direction. They start with the deduction and work backwards, and you can hear it in the pitch. If it leads with the write-off, slow down. If the deduction is bigger than what you actually gave up, ask who's funding the difference.

If something like this landed in your inbox this year, run it past your CPA before you sign anything. Or if you'd like a second set of eyes on it, click the link in the description and tell us a little about your situation. We'll set up some time to talk.

Now, this video is meant to be educational and general in nature. It is not tax, legal, or investment advice. The figures used here are hypothetical and reflect current tax laws. State taxes and your individual circumstances can meaningfully change the outcome.