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الثلاثاء، 19 فبراير 2019

Tax Identity Theft: Protecting Your Credit and Finances

Tax season is here, and though you technically have until April 15 to file your returns, you might want to submit yours sooner than that — at least if you want to avoid potential identity theft (and a whole lot of hassle).

Tax-related identity theft is a growing problem in America, and the more security breaches, information hacks and digital business we do as a society, the more consumers who fall victim to it. In fact, in 2016 alone, thieves stole more than $21 billion in tax refunds as a result of this simple, yet clever, form of identity theft.

Have you fallen victim to Tax ID Theft and need help dealing with the financial ramifications? Or just want to know ways to prevent it from happening to you? This guide can help.

What is Tax-Related Identity Theft?

Tax identity theft occurs when someone files a tax return using your Social Security Number. In some cases, thieves do this in order to claim a fraudulent tax refund. In others, they may have used your SSN to obtain employment. When this occurs, their employer will report all income to the IRS using that SSN. When you don’t report that same income on your own return, the IRS will flag it as suspicious and require you to pay taxes on that additional income. It may even lead to a tax audit.

Victims of tax-related identity theft face serious financial ramifications. Not only are they unable to file their own returns (or claim their tax refund), but it also may indicate other financial vulnerabilities are at work. Unauthorized loans, credit cards and other accounts may have been opened using the victim’s identity. Victims are typically encouraged to freeze their credit when tax-related identity theft occurs. They may also need to work with creditors and credit reporting agencies to clear their name of any fraudulent activity.

How Does Tax Identity Theft Happen?

Generally, tax-related identity theft — and all identity theft, for that matter — occurs after a person’s sensitive information has become public or fallen into the wrong hands. This often happens due to security breaches or digital data hacks, like the recent ones involving mortgage dataQuora users and Marriott/Starwood Hotels customers.

Tax-related identity theft often occurs in February and early March, as thieves must file the fraudulent returns before the real taxpayers file their legitimate ones. Fortunately, the IRS is taking steps to reduce identity theft from many angles. The agency has hired more employees dedicated to stopping fraud, implemented additional safeguards and also changed many of the standards used to file and authorize returns. Despite these efforts, tax-related identity fraud does still occur — and it’s important everyday Americans are ready should it happen.

How to Know You’ve Been Victimized

If you’ve fallen victim to tax-related identity theft, there are several ways you might learn of it. First, your legitimate tax return may be rejected. When you go to e-file your tax return, the IRS will reject it if a return has already been filed for your Social Security Number. If you filed a paper return, you would get a rejection notice in the mail, alerting you that your return has already been filed.

In the event the thief used your SSN to obtain a job, you likely won’t learn of the issue until your returns have been filed and processed. Once the IRS sees that your reported income does not match the income reported by employers to your Social Security Number, they will send you a later saying you failed to report income or that you owe additional taxes.

It’s important to note that all communications from the IRS will come via mail. The agency will not call, text or email you regarding your returns or any suspicious activity. Do not provide sensitive information to anyone pretending to be an IRS agent via these methods and report the issue to the U.S. Treasury Inspector General for Tax Administration.

What to Do Next 

If you discover that you are the victim of tax identity theft, you’ll need to report it to both the IRS and the Federal Trade Commission.

Specifically, you’ll need to:

  •  Fill out Letter 5071C, if you’ve received it. The IRS may send you Letter 5071C if it flags your return as suspicious or suspects fraud has been committed. This form requires you to verify your identity and breaks down the steps for doing so. Follow these directions exactly and take any additional steps recommended once your identity has been confirmed.
  •  Use Form 14039 to alert the IRS of the issue. Fill out the form, along with a copy of your Social Security card and driver’s license, to Internal Revenue Service, P.O. Box 9039, Andover, MA, 01810-0939. Make sure to send the letter by certified mail to ensure it arrives safely and untampered with. If you received a notice in the mail, include this with your letter as well.
  • Apply for an Identity Protection PIN. These are six-digit numbers that the IRS will use to confirm your identity on all future returns and filings.
  • Notify the Federal Trade Commission. File an identity theft report at IdentityTheft.gov in order to alert the FTC. This website can also help you create a plan of action for responding to identity theft.
  • Contact your state tax agency. There may be additional steps your state requires when identity theft occurs.

If you tried to e-file and got rejected, you should go ahead and file your paper return and pay any taxes you owe via mail. If at any point you need help in the process, call the IRS Identity Protection Specialized Unit at 800.908.4490 for assistance. An agent can walk you through the appropriate steps to both report and respond to the theft.

The Road Ahead – Rebuilding Your Credit and Finances

Though the IRS says it typically takes 120 days or less to address cases of identity theft, according to USA Today, it often takes as many as 278 days to resolve a claim and get your legitimate refund.

This doesn’t even include the time and resources needed to address other consequences of identity theft — such as unauthorized loans, credit cards, purchases and more. Depending on how deep the theft goes and how available your personal information was, the financial ramifications can often last months or even years.

The important thing to do is to remain vigilant. This means:

  • Pulling your credit report and monitoring for suspicious financial activity. Look at your credit report and make sure there are no unauthorized accounts or loans to your name. Contact the creditors and close these if necessary. You should also check with your banks and lenders to ensure there is no suspicious activity. If there is, dispute the charges and follow the steps to have those waived from your accounts.
  • Placing a fraud alert on your credit profile. Contact one of the three major credit reporting bureaus (Experian, TransUnion or Equifax) and ask that a fraud alert be placed on your record. This can prevent thieves from opening up new credit cards or loans in your name. You can also request a total credit freeze if you want to be extra safe.
  •  Considering credit monitoring. Though these services come at a fee, they can help you keep tabs on your credit profile — as well as any changes that occur on it.
  • Working with the Social Security Administration. Report the identity theft and take any additional steps recommended. In severe cases, you may need to apply for a new Social Security Number.
  • Continuing to work with the IRS and FTC as necessary. Respond quickly to any FTC or IRS request. Any delays could delay the resolution of your case and the delivery of your refund.

In some cases, you may want to involve a lawyer — especially if your investments, retirement accounts, mortgage or other major financial products have been affected. They can help you traverse the legal issues that crop up with creditors, lenders and financial institutions along the way.

Your Options for Financial Recovery 

Many victims of tax-related identity theft experience cash flow issues or must deal with additional debt as a result of the experience. They also may be unable to take out traditional loans or credit accounts due to the impact the theft has had on their credit score and profile.

When this occurs, victims have these options:

  • A Tax Advance Loan – Tax Advance Loans (TALs) give you an advance on your projected refund. While sometimes helpful, these aren’t the best idea if your refund is small. They can also impact your credit score and often require a significant chunk of your refund to secure.
  • A personal loan – Personal loans can offer access to more cash, as well as more lenient (and longer) repayment terms. These can be especially helpful for victims hit hard by their identity theft.
  • Credit-builder loans – These loans are beneficial if your credit score was severely impacted by the theft. Typically offered through community banks and credit unions, they help you improve your score by reporting your consistent payments to credit bureaus.
  • Secured credit cards – If the identity theft required you to close your credit accounts, a secured credit card can be a good option. These require you to deposit money up front, as collateral. They then function like traditional credit cards, while also helping you establish good credit standing (as long as you pay on time, every time).
  • Help from loved ones – In many cases, family members, friends and other loved ones are willing to provide financial help. They might offer no-interest loans or even gifts to help you get through your rough patch.

There’s always the option to wait it out, too. If the damage was minimal or you weren’t relying on your refund for financial stability, you may be able to await the IRS’ resolution of your case.

Reducing Your Risk

If you aren’t already the victim of tax-related identity theft, you should take action to ensure you never become one. This means protecting your personal information, shredding sensitive documents and using strong passwords on all online accounts.

You can also:

  •  Lock your mailbox.
  • Use a secure computer on a secure network when e-filing.
  • Check your credit report annually for suspicious activity.
  •  Install a firewall and antivirus software on your computer.
  • Learn how to recognize phishing emails and fraudulent requests for information.
  • Keep sensitive documents (like your Social Security card) in a safety deposit box.
  • Only provide your Social Security Number when absolutely necessary.

You should also file your returns as early as possible. A fraudster cannot file a return using your Social Security Number if one has already been filed. Make it a point to file your taxes as soon as you have the information necessary to do so.

The post Tax Identity Theft: Protecting Your Credit and Finances appeared first on The Simple Dollar.



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