Tips to Avoid Tax Return Identity Theft

Tips to Avoid Tax Return Identity Theft

During tax season we see many people paying too much to get their taxes prepared, getting taken advantage of, or becoming a victim of identity theft. Read on for tips to avoid all of the above.

Tax Return Identity Theft

The best tip to avoid losing your tax return to a scammer is to file your taxes as soon as possible. If a scammer files a phony return in your name and does it before you get a chance to file, they will get a refund and your real tax return could be flagged as the fraudulent one. Often, this can be resolved, but it can take several months! So, get on top of this year’s tax return as soon as you can.

Some scams actually include having the fraudulent tax return deposited in your bank account, then the scammer contacts you saying there was a mistake and to return the money. When you “return” the money you may actually be sending it to the scammer. If this happens to you contact your local IRS office to discuss the fraudulent activity and figure out a way to return the funds. DO NOT follow instructions from anyone that calls or emails you!

If you have been, or become, a victim of tax return identity theft you may find this article helpful in regard to how to alert the IRS. Alerting them can help resolve the issue faster or avoid extensive wait times on your return.

Other steps to protect yourself from tax return identity theft and other forms of identity theft include some common sense tips:

  1. Keep your Social Security number private and don’t carry your Social Security card in your wallet – leave it at home
  2. Keep other identifying information and documents private and safe. Never leave financial documents in your vehicle. I’ve had many people tell me about having all their documents to file their taxes or to go get pre-approved for a mortgage in a folder in the car and finding the car had been broken into while they were at work or overnight and all the documents stolen. You may also want to consider using a locking mailbox if you don’t already.
  3. Shred financial documents when no longer needed rather than just putting them in the garbage.
  4. Make your passwords strong, and change them occasionally. Don’t use the same password for everything. You don’t have to come up with a totally unique password for every account; even just changing it by one character is better than having them all the same.
  5. Avoid phishing and phone scams

Phishing and Phone Scams

Phishing involves emails requesting that you respond with your personal information. They usually include a scare tactic such as “your refund was deposited in the wrong account” or “update your records.” Read 15 Examples of Phishing Emails. If you think an email looks legitimate, don’t click the links in the email rather, use your web browser to go directly to a company’s website (your bank, for example), log in, and see if any updates or changes need to be made, or call the company. The links can do two things – put malware on your computer that can collect data, or just ask for personal data that you may provide to a scammer unknowingly.

Phone scams have long been a key way the bad guys get your information. Similar to the phishing scam, you may get a call saying something is wrong or that you have won a prize and then your social security number or bank information will be requested. There are times you may provide this information over the phone, such as when you called the company requesting some type of service, but never if they call you. The IRS and State Tax Commission NEVER call you, they will send a letter and ask you to respond. Also, they typically have all of your information on file, so there is no reason to call and ask for more information.

Choose a reputable tax professional

Choose a person or company that has been around for a while and that will likely be around in the future. Get references from friends or family, or use the resources provided in our blog post How and Where to File Your Taxes for Free. The majority of people have rather simple tax returns and should be careful to not overpay for preparation services. Shop around a little bit before filing and maybe even consider giving it a go on your own – especially if you only have one or two W-2’s and don’t plan to itemize your deductions.

A professional tax preparer should have credentials they enter with your tax return and will print out with the completed forms so both you and the IRS know who prepared the return.

Some forms of fraud that tax preparers commit include inflating numbers, adding credits or deductions that you do not actually qualify for in order to get you a larger refund. Doing these things to get more money back may seem enticing, but it is illegal. You are ultimately responsible for what is submitted to the IRS, not your tax preparer, so, never sign a blank tax form, and be sure you have proof for all the deductions, credits, expenses, etc. that were claimed and save that proof with the tax return. Did you know that you should keep your tax returns and support documents for 7 years? The IRS can flag you for an audit anytime, but this type of fraud will cause the red flags to be more likely.

Tax Refund Anticipation Loans

Avoid the highly advertised tax refund anticipation loan at all costs. The IRS is rather quick at getting refunds out, less than a month typically. A $3,000 tax refund can easily become $2,500, or less, due to the fees and interest paid to get the money just two or three weeks earlier. This is just not worth the cost. These are right in line with payday loans and should not be utilized unless you have a legitimate emergency that you need the funds for and no other way to pay.

Good luck this tax season! Don’t forget to check out our post How and Where to File Your Taxes for Free for some great resources, there is even one with no income restrictions!

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