If you pull up a news app on your smartphone or turn on the evening news, there’s a good chance you will see a story about fraud these days. More specifically, you’ll probably come across many cases of tax fraud.
Tax fraud has become one of the leading scams in our society, affecting millions of both individuals and self-employed professionals who run their own small businesses. Fortunately, there are some steps you can take to protect both yourself and your enterprise from scammers who file fraudulent returns to claim tax refunds for themselves or use your personal information for other purposes.
- Get your tax returns filed to the IRS early enough.
It can only help you to avoid tax fraud when you file all of your tax returns early enough in tax season, such as before the filing season really picks up in March. The reason for this is that if your personal and business returns hit the desk of an IRS agent first, any fraudulent returns being filed by a scammer subsequently should be flagged by the agent since your returns came in before the fake ones.
- Be wary of giving out personal info like an SSN.
So many companies, doctor’s offices, employers and others ask for personal information when filling out paperwork both in-person or even electronically. So, take appropriate measures when giving out any personally identifying information. This includes your full name, home address, business office address, Employer Identification Number (EIN), Social Security Number (SSN), and date of birth. Fraudsters can often use any of this information to access your personal or business tax records. So, unless you are 100% sure that a person or organization will keep your personal information confidential, be extremely careful about giving it out.
- Set up a legal entity for your small business.
If you register a legal entity for your small business like an LLC, S corporation or C corporation, you’ll be on your way to a variety of nice benefits. One perk is liability protection, which can help you protect your business assets and avoid the potential ramifications of tax fraud. Additionally, formal business entities typically enjoy increased opportunities for tax deductions and more credibility within a particular industry.
- Know about the Internet tax scams out there.
Online tax scammers are so prevalent these days, knowing that so many individuals out there will fall for their well-planned tax schemes. Fraudsters often claim to be official IRS agents who send mass e-mails to random individuals. They may state in the message that an individual’s tax return requires additional examination from their IRS supervisor, and they’ll request a Social Security Number to expedite the review process. Remember that the IRS only contacts taxpayers by either telephone or e-mail, so steer clear of any e-mail messages you receive that might look official but are probably just a scam waiting to happen.
- Protect your personal and business records.
Always keep your most important personal and business records in a safe place and out of the hands of potential scammers. You should also ensure they are organized properly – and that you can quickly gain access to them when you’re in a pinch. It’s wise to keep digital copies of documents as well, including copies of previous years’ tax returns, invoices, profit documents, bank records and other important paperwork. But be sure to put a strong password on your computer and other mobile devices to protect these files, along with software to avoid getting viruses or spyware.
- Check your credit report every few months.
Credit card number theft is also a rampant problem. This is why you should review your credit score and credit report on a regular basis, perhaps once a month or every few months. Lots of websites offer free or cheap access to credit reports, so take advantage of them and look for any figures out of the ordinary in your personal and business credit information. Take a close look at your credit card statements as well to make sure all purchases on them are legitimate.
- Research all business services you use.
It’s important to thoroughly research each and every business service provider you use to help support any aspect of your enterprise. Research accountants, attorneys, marketing agencies, and even repairmen to be certain that each of these service providers has a good reputation. As you’ll probably give out some sensitive business information to one of these companies, you never know who could have bad intentions to rip you off or, worse, steal your identity to commit tax fraud. Another option is to use identity theft protection and credit monitoring services.
- Use caution when accessing important data on your mobile device.
Smartphones and tablets are incredibly convenient for certain tasks, but it’s often safer to utilize a desktop or laptop computer with an Ethernet connection instead of Wi-Fi when dealing with tax and financial data. The main reason for this is that computers and hard-wired Internet access points offer a little more security compared to mobile devices.