ID theft should be a big concern. Last year, the Internal Revenue Service (IRS) paid more than $5 billion to thieves posing as taxpayers (according to an August, 2014 report by the U.S. Government Accountability Office). The most popular way ID thieves operate is by filing fraudulent tax returns using the victim’s name and Social Security number. Often times, taxpayers don’t know they’re a victim until they file their tax return. Their refund can be delayed for months while the IRS sorts out which return is the real one (according to the IRS).
Three ways taxpayers do to protect themselves
1. File Early
The best defense is to file early. If the IRS already has your return on file, the identity thief will be denied when they try to use your Social Security number for a fake return.
2. File Electronically
The IRS will get your return faster if you e-file. But make sure your connection is secure – use a personal computer rather than a work or a public one. Also, make sure your firewall, anti-spam and virus software is up to date.
3. Protect Personal Information
Don’t give out your personal information without verifying who you are talking to. The IRS will never email, text or send you a message over social media. If you get a suspicious email, phone call or letter claiming to be from the IRS, you should report it. I have a link to do that on my website, dursocapital.com. Also, if you’re sending in a payment, take it to the post office rather than putting your check in an unlocked mailbox. And if you’re getting a refund by mail, check your mailbox every day to make sure it isn’t stolen.
What should we do if we become victims of tax ID theft?
The first step is to contact the IRS as soon as possible. Document everything, and keep in contact with the IRS until the issue is resolved. You can file an identity theft complaint with the Federal Trade Commission (FTC). You may also want to file a report with the local police, as well as contact the fraud departments of the three major credit bureaus. Those resources are also listed on my website.
Is this tax season going to be a difficult one for taxpayers?
This is another reason to consider filing early- the IRS expects to be extremely busy this season due to budget cuts that led to a hiring freeze and cuts to overtime. The commissioner warned that nearly half of the people who call for help will not be able to reach an employee. Also, taxpayers will have to wait longer for their refunds because it will take longer to process the returns.
What should you do with your refund?
The average tax refund last year was nearly $2,700 (according to a September 2014 report by the Treasury Department). For many Americans, it’s the largest lump sum of money they’ll get at one time (according to a January, 2013 report by American Tax & Financial Center.) I recommend my clients dedicate their refunds to long-term goals like paying down debt, saving for retirement or starting an emergency fund. The important thing is to have a plan for the money before you actually get it. That way, you’re more likely to put it to good use, rather than buying something that only brings you short-term fulfillment.