While preparing your taxes is never anyone's favorite task, it's essential to be vigilant against the potential for fraud that tends to peak during this time of year. Tax-related fraud can take many forms, ranging from identity theft to phishing scams. In this blog, we will explore the various types of tax fraud, how to protect yourself, and what to do if you become a victim.
Understanding Tax Fraud
Tax fraud is essentially the illegal act of deceiving the IRS or other tax authorities to avoid paying taxes owed. Some common types of tax fraud include:
- Identity Theft
This occurs when someone uses your personal information, such as your Social Security number, to file a fraudulent tax return and claim a refund. This can happen before you even file your own return, making it appear that you have already received your refund.
- Phishing Scams
Scammers may send emails or messages posing as the IRS or tax preparation services, claiming that you need to provide personal information to resolve an issue with your taxes. These communications can often seem legitimate, leading individuals to unwittingly share sensitive information.
- False Claims for Refunds
Some may attempt to inflate their tax returns by claiming deductions or tax credits they are not entitled to, which is deemed as tax fraud.
- Employment-Related Fraud
This type involves employers underreporting income or paying individuals under the table to avoid payroll taxes.
Staying Vigilant: Tax Season Tips
To protect yourself during tax season, consider the following tips:
- File Early
One of the most effective ways to prevent tax fraud is to file your tax return as early as possible. The sooner you file, the less chance there is of someone else filing under your name.
- Secure Your Personal Information
Be sure to store your tax documents and sensitive information securely. Avoid keeping documents in easily accessible places and consider using a safe or locked file cabinet.
- Verify Tax Preparers
If you’re using a tax preparation service, do your due diligence. Check their credentials, read reviews, and ensure they have a privacy policy in place to protect your information.
- Beware of Phishing Scams
Be cautious of unsolicited emails and text messages. The IRS will never ask for personal information via email, text, or social media. Always verify communications through official channels.
- Monitor Your Financial Accounts
Regularly check your bank and credit card statements for unusual activity. Report any discrepancies to your financial institution immediately.
- Use Strong Passwords
If you’re filing your taxes online or using software, make sure to use strong, unique passwords. Consider enabling two-factor authentication for an added layer of security.
- Stay Informed
Keep up-to-date with the latest scams targeted at taxpayers. The IRS provides a list of known scams each year to help you stay informed and vigilant.
What to Do if You Become a Victim
If you suspect you’ve fallen victim to tax fraud, it’s important to act quickly:
- Report Identity Theft
You can report identity theft to the Federal Trade Commission (FTC) at IdentityTheft.gov. They will guide you on the necessary steps to take.
- Contact the IRS
If your tax return has been rejected due to a duplicate filing, you should contact the IRS’s Identity Protection Specialized Unit at 1-800-908-4490 for guidance.
- Place a Fraud Alert
Consider placing a fraud alert on your credit report by contacting one of the three major credit bureaus: Experian, TransUnion, or Equifax. This will make it more difficult for someone to open new accounts in your name.
- Consider a Credit Freeze
If you’re concerned about ongoing identity theft, you can also place a credit freeze on your files, which prevents potential creditors from accessing your credit report altogether.
- Keep Documentation
Maintain records of all communications you have about the fraudulent incident, including dates, times, and contact information.
This tax season, it's vital to stay informed and vigilant against tax-related fraud. While the prospect of preparing your taxes can be overwhelming, protecting your personal information is vital. By filing early, staying cautious, and being informed, you can help safeguard yourself against potential scams and fraud. Remember that the IRS and other official entities will never ask for your personal information through unsolicited emails or phone calls. By following these reminders, you can contribute to a safer tax season for yourself and your loved ones.