Tax season can be a confusing and expensive time of year.
Not only is Uncle Sam trying to collect the money that is owed, but there are a slew of schemers seeking to steal refunds.
According to the Taxpayer Advocate Service, an IRS internal watchdog, last year the IRS received 294,138 complaints of reported identity theft, the second most in its history.
The most was back in 2021 with 328,591 complaints which showed the surge of cybercrime during the COVID-19 pandemic.
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This tax season, it is important to have at least a basic understanding of what types of tax fraud are out there and how to best avoid them.
According to Wallethub, here are three of the most common types of tax fraud and how to prevent yourself from falling victim to these scams:
Fraudulent returns or identity theft
With just a few pieces of your personal information scammers can file a fraudulent tax return and take your refund, if any.
Luckily, there are some warning signs that can pinpoint suspicious activity.
If you receive a letter from the IRS about multiple returns or that you have a failed e-file attempt it could be a sign that a fraudster already filed using your name.
As a preventative measure, Wallethub recommends filing as early as possible every year regardless of whether or not you expect to owe any taxes or receive a refund.
Phishing
Scammers will sometimes pretend to be IRS agents or other types of financial professionals in an effort to extract sensitive financial information from consumers.
They then could use this information to sell or exploit for a profit.
According to Wallethub, they often "try this type of scheme on recent immigrants who are filing in the U.S. for the first time, commonly threatening deportation as a penalty for noncompliance."
One thing to keep in mind is that the IRS does not contact taxpayers to request personal or financial information and it also does not threaten taxpayers with lawsuits or deportation.
Be cautious when clicking on suspicious emails and if you are on the phone with a potential phisher as them to put you on a "do-not-call list."
TAX SEASON
Illegitimate relief or servicing companies
During tax season everyone is hoping to get as much money refunded as possible and a number of companies claim that they can find hidden deductions or negotiate with the IRS for you.
If it sounds too good to be true, it just may be.
According to Wallethub, many of these companies are merely looking to charge a high fee, use creative contract language to limit the need for real results, which later prevent you from taking action if they don't deliver.
Before signing anything, research the company’s reputation, read customer reviews and make sure to read the fine print on anything that requires a signature.
Other helpful tips to prevent fraud
There are several ways you can make sure that you don't fall victim to any tax schemes this season.
Here are some recommendations to make sure you have a successful tax filing season.
- Familiarize yourself with the tax process: Educate yourself on the filing and refund processes and know what your rights and obligations are as a taxpayer.
- Keep private information private
- Request a tax transcript from the IRS: If you request one, the IRS will give you a free copy of your records. This way you can compare the records with your reported income and make sure everything lines up.
- Sign up for credit monitoring
- Be on the lookout for fake financial companies: Make sure that whoever you are speaking with is not impersonating a trustworthy company or professional or offering suspicious services under a different brand.
- Read the fine print
- Review your monthly bills
