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Tax Time Identity Theft Prevention Tips

Your greatest risk of identity theft during tax season comes from your tax preparer (if you use one) either because they are dishonest (less likely) or because they are careless with your sensitive documents (more likely).
Written Mar 26, 2010, read 926 times since then.
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This past week, I have been helping a gentleman recover from the theft of all of his tax records.  Before it is all over, this gentleman will have spend hundreds of hours and thousands of dollars simply preventing any further fraudulent use of his identity. That doesn’t account for any damages already done to his finances, criminal record, medical records or social security benefits. There is very little that is more damaging and dangerous to your identity than losing your tax records. After all, tax records generally contain the most sensitive personally identifying information that you own, including Social Security Numbers (for you, your spouse and maybe even your kids), names, addresses, employers, net worth, etc. Because of this high concentration of sensitive data, tax time is like an all-you-can-eat buffet for identity thieves. Here are some of the dishes on which they greedily feed:

  • Tax documents exposed on your desk (home and work)
  • Private information that sits unprotected in your tax-preparer’s office
  • Improperly mailed, emailed and digitally transmitted or filed records
  • Photocopiers with hard drives that store a digital copy of your tax forms
  • Copies of sensitive documents that get thrown out without being shredded
  • Improperly stored and locked documents once your return is filed
  • Tax-time scams that take advantage of our propensity to do whatever the IRS says (even if it’s not really the IRS asking)

Top Tips for Tax Time Identity Theft Protection Safe Preparation. Your greatest risk of identity theft during tax season comes from your tax preparer (if you use one) either because they are dishonest (less likely) or because they are careless with your sensitive documents (more likely). Just walk into a tax-preparers office on April 1 and ask yourself how easy it would be to walk off with a few client folders containing mounds of profitable identity. The devil is in the disorganization.

Effective Solutions:

  • Choose your preparer wisely. How well do you know the person and company preparing your taxes? Did they come personally recommended, or could they be earning cash on the side by selling your personal information. Do they have an established record and are they recommended by the Better Business Bureau?
  • Interview your preparer before you turn over sensitive information. Ask them exactly how they protect your privacy (do they have a privacy policy?). Are they meeting with you in a room full of client files, or do they take you to a neutral, data-free, conference room or office? Do they leave files out on their desk for the cleaning service to access at night, or do they lock your documents in a filing cabinet or behind a secure office door? Do they protect their computers with everything listed in the next section?
  • Asking professional tax preparers these questions sends them a message that you are watching! Identity thieves tend to stay away from people they know are actively monitoring for fraud. Remember, losing your identity inside of their accounting or bookkeeping business poses a tremendous legal liability to their livelihood.

Secure Computers. Last year, more than 80 million Americans filed their tax returns electronically. To prevent electronic identity theft, you must take the necessary steps to protect your computer, network and wireless connection. Additionally, your tax preparer should be working only on a secured computer, network and internet connection. Hire a professional to implement the following security measures:

  • Strong alpha-numeric passwords that keep strangers out of your system
  • Anti-virus and anti-spyware software configured with automatic updates
  • Encrypted hard drives or folders (especially for your tax preparer)
  • Automatic operating system updates and security patches
  • An encrypted wireless network protection
  • A firewall between your computer and the internet
  • Remove all file-sharing programs from your computer (limewire, napster, etc.)

Private information should be transmitted by phone using your cell or land line (don’t use cordless phones). In addition, never email your private information to anyone unless you are totally confident that you are using encrypted email. This is a rarity, so don’t assume you have it. In a pinch, you can email password protected PDF documents, though these are relatively easy to hack. Stop Falling for IRS Scams. We have a heightened response mechanism during tax season; we don’t want to raise any red flags with the IRS, so we tend to give our personal information without much thought. We are primed to be socially engineered. Here’s how to combat the problem:

  • Make your default answer, “No”. When someone asks for your Social Security Number or other identifying information, refuse until you are completely comfortable that they are legitimate. Verify their credentials by calling them back on a published number for the IRS.
  • If someone promises you (by phone, fax, mail, or in person) to drastically reduce your tax bill or speed up your tax return, don’t believe them until you have done your homework (call the IRS directly if you have to). These schemes flourish when the government issues economic stimulus checks and IRS refunds.
  • If anyone asks you for information in order to send you your check, they are scamming for your identity. The IRS already knows where you live (and where to send your rebate)! By the way, the IRS will NEVER email you for any reason (e.g., promising a refund, requesting information, threatening you).
  • To learn more about IRS scams, visit the only legitimate IRS website, which is www.irs.gov. If you are hit by an IRS scam, contact the IRS’s Taxpayer Advocate Service at www.irs.gov/advocate.

Mail Safely. A good deal of identity theft takes place while tax documents or supporting material are being sent through the mail. If you are sending your tax return through the mail, follow these steps:

  • Walk the envelope inside of the post office and hand it to an employee. Too much mail is stolen out of the blue USPS mailboxes and driveway mailboxes that we use for everything else to make them safe.
  • Send your return by certified mail so that you know it has arrived safely. This sends a message to each mail carrier that they had better provide extra protection to the document they are carrying.
  • Consider filing electronically so that you take mail out of the equation. Make sure that you have a well-protected computer (discussed above).

Shred and Store Safely. Any copies of tax documents that you no longer need can be shredded using a confetti shredder. Store all tax records, documents and related materials in a secure fire safe. I recommend spending the extra money to have your safe bolted into your home so that a thief can’t walk away with your entire identity portfolio. Make sure that your tax provider appropriately destroys and locks up any lingering pieces of your identity as well. Tax returns provide more of your private information in a single place than almost any other document in our lives. Don’t waste your tax refund recovering from this crime.

Learn more about the author, John Sileo.

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