MONEY Taxes

6 Red Flags That Can Get You Audited

red flag push pin
Sergey Galushko—iStock

These six red flags that can trigger questions from the IRS, or even a full-blown tax audit.

There’s nothing quite as heart-stopping as a notice from the IRS. Sometimes it’s to raise a question about an item on your return; other times you may get a notice that you owe money. If you’re really unlucky, you may find out the IRS is auditing your return. Fortunately, about 80% of audits are simply “correspondence audits,” meaning the IRS is “asking for documentation or showing an adjustment made based on information received,” says Lisa Greene-Lewis, CPA and TurboTax tax expert.

But no matter how innocuous, the only time most people want to get mail from the IRS is when they are waiting for a refund check. Here are six red flags that can trigger questions from the IRS, or even a full-blown tax audit.

1. Not Claiming Income

You know all those W-2s and 1099 forms you get in January and February? The IRS gets copies of those forms, too, and they with match them with the income you report on your tax return. “Taxpayers must always make sure that the income on Form W-2 and Form 1099 match the reported income on their returns,” says Stephen F. Lovell, president of Lovell Wealth Legacy.

You may not hear from the IRS about this kind of problem right away. I once received a notice from the IRS two years after I failed to report income from a 1099 form I never received. (I’d moved, and I assume it went to my old address.) And we’ve heard from taxpayers who’ve received notices from the IRS telling them they owe taxes because they failed to report income from canceled debt (reported on Form 1099-C) several years after the fact. If you’ve moved in the past few years it’s possible the IRS got a form reporting income but you didn’t. If that’s a concern, order a wage and income transcript from the IRS for the years you are concerned about. (Note: You likely will not be able to get your transcript for the current tax year until about 3-6 weeks after you filed your return and paid what you owe.)

2. Daring Deductions

“If your deduction claims are way off, you’re likely to get questioned,” says Kay Bell, tax blogger at Don’t Mess with Taxes. What constitutes “way off?” The IRS can compare tax return data to averages, explains Bell. “Known as the Discriminant Information Function, or DIF, this computer-scoring system looks at average deduction amounts.” That doesn’t mean you shouldn’t take legitimate deductions; just be prepared to back them up.

3. Business Losses

Self-employed, or have a side business? If you file Schedule C, the form that reports business income or loss, understand that a loss could cause the IRS to look more closely. “If you show a loss, the IRS’s question is, “Is this a real business or just a hobby?” warns Dan Pilla, author of How to Win Your Tax Audit. The IRS will look at whether expenses were “incurred for the intent of earning income and not just pleasure” as in a hobby, he says. Making a profit doesn’t automatically ensure that expenses won’t be scrutinized. You’ll need to be able to demonstrate a legitimate business purpose if questioned.

4. Questionable Charitable Deductions

Did you donate an old car or boat? If the value of a single item you donate is $5,000 or more you’ll need to get an appraisal. Cleaning out closets and donating clothing or other household items to charity? “It’s also a good idea to take pictures of donated non-cash items,” says Greene-Lewis. Of course, there’s an app for that: TurboTax ItsDeductible can help you figure out how to value those items and track your donations. I use it myself and find it helpful for figuring out how much that purse or stack of books I’m giving to my local Goodwill might be worth.

Also remember that in order to be deductible, charitable gifts must be made to a qualified organization and you can only deduct the amount that exceeds the value of any benefits you received (ticket to a concert or dinner at a restaurant, for example). The IRS also warns that if you want to deduct contributions of “cash or property equaling $250 or more you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization” that satisfies IRS requirements. More details on charitable deductions can be found on the IRS website.

5. Failing to Properly Pay Household Employees

If you employ a nanny, housekeeper or an aide to help care for an elderly member of your family, you may run into any of three common tax traps, warns Tom Breedlove, Care.com Home Pay Household Tax Expert. The first is paying them under the table. If your household help earns $1,900 or more in a year, you must have taxes withheld from their pay, and you — as the employer — must file and pay state and federal taxes. While you may have an arrangement with your caregiver to pay them in cash, if they try to collect unemployment benefits, your off-the-record arrangement could backfire.

In addition, Breedlove warns that “household employees must be paid overtime for hours over 40 worked in a seven-day workweek.” Again, this could come up if the employee files a wage dispute. “On top of this, families could be audited, which can result in having to amend previous tax returns and pay additional taxes on the wages that were incorrectly reported,” he says. And lest you think that just giving the employee a 1099 instead of W-2 form solves the problem, think again. “The IRS equates this practice to tax evasion,” he says.

6. You and Your Ex Don’t Match Up

Are you paying alimony? Collecting alimony? Then make sure the amounts you and your ex report match up. “Although divorced, ex-marrieds must make sure that their respective returns mirror each other,” says Lovell.

Similarly, if you have children, only one of you gets to claim child-related tax benefits such as the child care tax credit, the dependency exemption, and the head of household filing status. Who gets to claim what will depend in large part who is considered the custodial parent. You’ll find more details in IRS Publication 501.

Again, don’t let the fear of an audit stop you from claiming legitimate tax deductions. And keep in mind that when it comes to any kind of audit, TurboTax says that less than 1% of tax returns reporting incomes under $200,000 get audited.

An audit in and of itself does not affect your credit: It’s only when you owe the IRS money you can’t pay right away that unpaid taxes may affect your credit. That’s because the IRS may file a Notice of Federal Tax Lien which will create a credit-damaging tax lien on your credit reports. (You can check your free credit report summary on Credit.com to see if there are any tax items that are impacting your credit.) And even then, if you can work out a payment plan with the IRS you can often get the tax lien removed from your credit reports while you pay off your tax bill.

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This article originally appeared on Credit.com.

MONEY Taxes

3 Things the Government Could Do to Make Tax Filing Less Painful

Uncle Sam with life preserver
Peter Gridley—Getty Images

While filling out a 1040 form is never going to be fun, tax time is actually much harder than it has to be. Here are three common-sense ways the feds could make doing your taxes less burdensome.

It’s no secret tax season isn’t one of the more enjoyable parts of the year (even for accountants). To a certain extent, that’s understandable. Filing a return means scrounging through receipts, rounding up documents, and depending on your financial situation, forking over more money to Uncle Sam.

But while filling out a 1040 form is never going to be fun, tax time is actually much harder than it has to be. That’s mostly thanks to the federal government, which has been reluctant to apply multiple common-sense policies that would make everybody’s April a lot nicer. Here are three ways the feds could make taxes less burdensome:

1. Let the IRS Do People’s Taxes for Them

Imagine a world where, instead of filing your own taxes, the government estimates your taxes and refund based on information it already has from employers, banks, and other institutions, and then gives you a review copy to look over. If everything is accurate, the individual taxpayer can simply accept that result and—poof!—taxes are done.

This system, called “return-free filing,” is no fantasy. It’s actually the status quo in European countries like Iceland, Sweden, Spain, and is even available to residents of California.

Why haven’t you heard of it? One reason is that Intuit (the maker of TurboTax) and other firms that provide tax preparation services have lobbied against return-free filing. An investigation by ProPublica found that Intuit alone spent $11.5 million on federal lobbying over a five-year period.

Not all that money necessarily went to fighting this specific issue, but Intuit has listed its opposition to “IRS government tax preparation” on the company’s lobbying disclosure form. Intuit has also acknowledged that return-free filing poses a risk to its business on its annual 10k filing with the Securities and Exchange Commission.

Lobbying aside, return-free filing’s opponents do have some valid criticisms. Asking more of the IRS can always be a dicey proposition, especially when its funding is repeatedly slashed (more on that in a second). The system could also be more burdensome for employers, who would need to give the government employee information sooner than they already do. There’s also the fact that the government can’t estimate particularly complicated returns; anyone looking to itemize, for example, is out of luck.

That said, return-free filing would still make life significantly easier for a huge number of taxpayers. According to Roberton Williams of the Tax Policy Center, over 23 million returns in 2012 were filed using the simplest tax form, 1040EZ, and the IRS should be able to pre-calculate those returns with “nearly perfect accuracy.” Other forms are more complicated, but some estimates suggest close to half of all taxpayers could benefit from a return-free policy.

According to Dennis J. Ventry Jr., a professor at U.C. Davis School of Law specializing in tax policy, those Americans who have been able to test out return-free filing seem to like it. A lot.

He recalls that when California first allowed return-free filing through a pilot project known as “Ready Return,” users of the program became instant fans. “It was amazing,” says Ventry, who remembers the program’s website being flooded with positive comments. “People were like, ‘Oh my god, this is the best program the government ever offered.'”

2. Stop Return Fraud by Having Employers File Tax Information Earlier

If you’ve never had your tax refund stolen, count yourself lucky. Every year, criminals steal billions of dollars from the government—and citizens—by filing fraudulent tax documents using stolen identity information and absconding with the refund.

According to the Treasury Inspector General, 1.6 million taxpayers were hit by tax identity theft in the first half of 2013, resulting in the theft of $5.8 billion dollars in refund money. Return fraud was so prevalent last year that Turbotax temporarily stopped processing state tax returns while it implemented additional anti-theft measures.

But as pervasive as return fraud is, it’s not hard to figure out why the system is vulnerable. As of now, citizens file their taxes in April, and the IRS is required to send out refunds quickly, generally within three weeks. Yet employers don’t have to send their employees’ tax information to the government until months after it’s given to workers, and it doesn’t actually reach the IRS until July.

That means the government can’t cross-reference the information your employer provided with the tax return filed in your name until long after your refund has been sent out. By the time fraud is discovered, it’s too late.

As Vox‘s Timothy B. Lee points out, Nina Olson, the National Taxpayer Advocate, has spent years advocating for a simple solution to this problem: make employers file tax information earlier, and then match that information with individual returns before releasing any money. “Upfront matching would reduce the incidence of tax fraud, identity theft, and inadvertent errors while also providing significant taxpayer service,” wrote Olson in testimony presented to the Senate Committee on Finance.

Unfortunately, for this plan to work, Congress needs to pass a law that would bump up employer reporting deadlines, and so far, that hasn’t happened. Until it does, refund fraud will be easier than it should be.

Read next: How To Get Your Money Back If Your Tax Refund Is Stolen

3. Give the IRS More Money

It might sound weird to complain that the tax man isn’t getting enough money, but the truth is the IRS is deeply underfunded, and the people who pay the price are, ironically, honest citizens.

During the last five years, the IRS has had its budget slashed by $1.25 billion dollars, representing a 10% decrease in resources.

Over the same time period, the number of total tax returns increased by about 11%. As the graph below shows, that’s led to a serious decline in service.

Source: National Taxpayer Advocate

Before tax season began, Olson predicted the IRS would only be able to answer half of an estimated 100 million taxpayers who call the IRS seeking assistance. Those who do get through might have to wait as long as 30 minutes for help, and will only be able to ask questions on a limited number of issues. “If these projections prove accurate,” Olson noted, “taxpayers in 2015 will receive the worst levels of service since the IRS implemented its current performance measures in 2001.” (Here’s how to get help when the IRS won’t answer your call.)

The upshot of this is that honest taxpayers seeking help on their returns will go through hell trying to get answers, while anyone trying to cheat on their taxes will have an easier time. In a January email to employees, IRS Commissioner John Koskinen wrote that the agency’s diminished enforcement capacity would cost the government $2 billion in revenue.

Next time you wonder why taxes are so annoying, remember: it doesn’t have to be this way.

MONEY Taxes

For Some Retirees, April 1 is a Crucial Tax Deadline

If you recently reached your 70s and aren't yet drawing money from your tax-deferred retirement accounts, you need to act fast.

For anyone who turned 70½ last year and has an individual retirement account, April 15 isn’t the only tax deadline you need to pay attention to this time of year.

With a traditional IRA, you must begin taking money out of your account after age 70½—what’s known as a required minimum distribution (RMD). And you must take your first RMD by April 1 of the year after you turn 70½. After that, the annual RMD deadline is December 31. After years of tax-deferred growth, you’ll face income taxes on your IRA withdrawals.

Figuring out your RMD, which is based on your account balance and life expectancy, can be tricky. Your brokerage or fund company can help, or you can use these IRS worksheets to calculate your minimum withdrawal.

Failure to pull out any or enough money triggers a hefty penalty equal to 50% of the amount you should have withdrawn. Despite the penalty, a fair number of people miss the RMD deadline.

A 2010 report by the Treasury Inspector General estimated that every year as many as 250,000 IRA owners miss the deadline for their first or annual RMD, failing to take distributions totaling some $350 million. That generates potential tax penalties of $175 million.

The rules are a bit different with a 401(k). If you’re still working for the company that sponsors your plan, you can waive this distribution rule until you quit. Otherwise, RMDs apply.

“It’s becoming increasingly common for folks to stay in the workforce after traditional retirement age,” says Andrew Meadows of Ubiquity Retirement + Savings, a web-based retirement plan provider specializing in small businesses. “If you’re still working you can leave the money in your 401(k) and let compound interest continue to do its work,” says Meadows.

What’s more, with a Roth IRA you’re exempt from RMD rules. Your money can grow tax-free indefinitely.

If you are in the fortunate position of not needing the income from your IRA, you can’t skip your RMD or avoid income taxes. You may want to reinvest the money, gift it, or donate the funds to charity, though a law that allowed you to donate money directly from an IRA expired last year and has not yet been renewed. Another option is to convert some of the money to a Roth IRA. You’ll owe income taxes on the conversion, but never face RMDs again.
Whatever you do, if you or someone you know is 70-plus, don’t miss the April 1 deadline. There’s no reason to give Uncle Sam more than you owe.

 

MONEY Taxes

Does My Teen Really Have to File Taxes?

150326_FF_TEENTAXES
Erik Dreyer—Getty Images

April 15 is rapidly approaching, and you know you have to file a tax return, but does your teen have to?

You know you have to file a tax return, but does your teen? The deadline is rapidly approaching, and he or she may — or may not — have received forms relating to income last year.

Chances are, your teen does not have to file. John Scherer, a certified financial planner with Trinity Financial Planning in Middleton, Wis., said they do not have to file if they have investment income of less than $1,000 or earnings of less than $6,200.

If your teen is under those thresholds and worked a job that withheld taxes, though, he or she would want to file to get those withholdings refunded. So encourage your teen to collect those W-2s, even if it seems like a lot of trouble for a refund that doesn’t sound terribly impressive (and yes, he or she might have multiple W-2s, if there were paychecks from a summer job, a part-time job and a holiday job). If your child is not required to file, the April 15 date does not apply, but it’s still a good idea to dig out those forms, if for no other reason than to emphasize they are important papers and should not be disregarded.

And even if W-2s weren’t issued (as for babysitting), it’s smart to keep — or to begin to keep — a record of earned income, Scherer said. This can be as simple as keeping a log and making corresponding deposits to a bank account. Those earnings won’t owe income tax so long as they add up to less than the standard deduction ($6,200 for 2014). (Update: Keep in mind, if your teen earns $400 or more and they are not employed by someone else, this income is considered self-employment income and they must file a tax return and pay self-employment taxes, warns Burton M. Koss, an enrolled agent with Cortes & Baker LLC.) Where the record of earnings can come in handy is with establishing a Roth IRA. While we don’t expect most teens to want to save all they earned for retirement, the limit is 100% of earnings or $5,500, whichever is smaller. So a parent or grandparent could put money into a Roth on the teen’s behalf, as long as the teen has earned income. And the young person’s retirement savings will not be counted against possible financial aid for college, but will have more years to increase in value.

So it’s smart to file, even if it’s optional and little or no refund is coming. Your teen might get a little tax money back, assuming it was withheld, and he or she should also get a glimpse of what taxes are and how they work — and some early practice at keeping records for tax purposes. Parents would be wise to “walk through it with the kids,” Scherer said. “For most folks, taxes are one of their biggest expenses they have.” And learning early that planning ahead can save real money can only help teens later.

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This article originally appeared on Credit.com.

MONEY Scams

IRS Agent or Scammer? 5 Signs You’re Being Conned

fishing hooks being dropped into fishbowl with goldfish
Adam Gault—Getty Images

A nasty con is on the rise involving fake IRS agents who call up potential victims and demand payment for back taxes.

Scammers who pretend to be IRS agents and harass unsuspecting citizens into paying debts they don’t owe have been quite busy over the last two years. According to the Associated Press, some version of this scam has resulted in victims being conned out of $15.5 million since 2013.

Only a small percentage of people who are targeted actually fall for the ruse, which in the past has involved criminals claiming to be federal agents named, rather uncreatively, Steve Martin or Jack Dawson—the actor-comedian and Leonardo DiCaprio character in Titanic, respectively. Roughly 3,000 have given money over to the con artists, out of more than 366,000 that have been contacted via phone over the past two years. But some of those who are victimized have been bilked out of big money—to the tune of more than $500,000 in one instance.

In order to avoid being victimized yourself, bear in mind a few key points:

Don’t trust caller ID. As the FTC noted last summer, scammers have ways of “spoofing” caller ID to make it look as if the call is originating from a government agency.

The IRS doesn’t call people up out of the blue. The IRS almost always contacts people about unpaid taxes first by mail, not by phone. So if someone claims to be a government agent and says that you owe money, or perhaps that you’re eligible for a refund or some prize, look up the agency’s official number and dial it up to check if what you’re hearing is legitimate. Most likely, it isn’t.

Don’t give out or confirm info over the phone. Fake agents may have some of your personal info—even the last four digits of your social security number. Don’t help out the imposter by confirming this info or giving out any other information over the phone.

IRS agents won’t ask for a specific form of payment. Scammers usually want payments made via prepaid debit cards or wire transfers because they’re difficult to trace. A genuine IRS agent never asks for immediate payment over the phone, never requests payment information over the phone, and never specifies a certain form of payment for unpaid taxes.

The IRS won’t threaten you with arrest or deportation. Or losing your driver’s license, your job, or your business. Scammers have made all of these threats and more in order to get victims to pay up swiftly. But again, if you truly owe the IRS money, you will first be notified by mail, not with a phone call. And certainly not with a harassing phone call.

As Timothy Camus, a Treasury deputy inspector general for tax administration, explained to the AP, “If someone calls unexpectedly claiming to be from the IRS with aggressive threats if you do not pay immediately, it is a scam artist calling.”

If you do get a call that you suspect to be a scam, hang up the phone right away, and then report the incident at the taxpayer administration hotline (800-366-4484). File a complaint with the FTC as well.

MONEY Taxes

How to Avoid Audit Red Flags When You Change Up Your Taxes

red flag
iStock

A break from how you normally file your taxes can lead to costly mistakes—and attract the attention of the IRS.

Taxes are one of the few constants in life, but what happens when you change the way you do your return?

People move or get divorced, tax preparers pass away. There is always the lure of do-it-yourself—the number of people using tax software to file, like Intuit’s TurboTax, increases by 6% annually, according to the Internal Revenue Service. And then there is the reverse exodus of people who have decided their financial lives are too complicated, and they need to hire a professional.

With so many changes, consistency takes a beating. If you are on the wrong end of it, you could end up drawing the dreaded attention of the IRS.

Here are the items that can trip up taxpayers when they switch the way they do their taxes:

1. Mileage logs

When John Dundon took over his father’s tax business after he passed away last July, the biggest surprise for the Denver, Colorado-based tax preparer was that road-warrior clients were not keeping mileage logs.

“Boundaries erode all the time between practitioner and taxpayer,” Dundon says. Laziness seeps in disguised as trust, and years later, there are simply no logs.

Dundon tells his father’s crossover clients they need a renewed zeal for paperwork—get a GPS device or a smart phone app for next year. For 2014 taxes, he is asking clients meticulously through calendars and maps to sort it out.

2. Rental property depreciation

Depreciation is a deduction you can take on certain assets, like rental property. The tax impact can be pretty significant, especially if you are trying to off-set income like rent.

The dollar amount is determined by a formula you follow year-after-year, called a depreciation schedule, which could run almost the full course of a 30-year mortgage.

“You definitely need that schedule. You can try to guess at it, and you’d probably be okay, but you wouldn’t be doing it 100% right,” says tax preparer Anil Melwani, who runs his own firm, 212 Tax & Accounting Services, in New York.

If it was not done at all previously or done wrong? You’ll need to file an amended return to correct it, Melwani says.

3. Carryforward losses

The IRS allows taxpayers to take $3,000 in losses a year on investments, and to carry forward those losses indefinitely until the amount is all used up. But use it or lose it—meaning, if you miss a year because you forget, you can’t pick it up in the following years as if nothing happened.

Harvey Bezozi, who has his own firm in Boca Raton, Florida, has a new client this year who will likely have to file amended returns because she skipped over this with her last preparer.

4. Home office

Taking the home office deduction? Stay consistent with the square footage of your home office. The best way to do that is to get out your tape measure and only include space that you use exclusively for work.

If there’s a pingpong table in the middle of the basement study you’re trying to claim, that’s a no-go, says Dundon.

5. Life changes

There is a lot that a new tax preparer—or a tax software autobot—can learn about you by just looking at your past returns, but their questionnaires will not catch everything. If you have a baby, buy a house, get divorced, have income in a foreign country or have job-hunting related expenses, you’ve got to speak up.

But things can get missed when people do not know enough to know what they are missing. That’s what drove a DIY-type like Ben Jaffe into the hands of a paid tax preparer this year.

Jaffe, a 29-year-old who works in PR in New York, bought a house in 2014 while his wife had a baby. He made the switch away from tax software because, he says, “I wanted an expert opinion to verify that I was doing everything right.”

One hour and $500 later, he’s feeling confident: “It saved me a lot of time and stress.”

MONEY ID Theft

How To Get Your Money Back If Your Tax Refund Is Stolen

Tax Refund check
B Christopher—Alamy

To protect your identity—and get the refund you're due as quickly as possible—follow this guide.

Did a thief beat you to filing your own taxes this year?

You’re not alone. More and more Americans are finding that someone has taken over their identity to file a fraudulent tax return in their name and collect the refund check.

In the first half of 2013, 1.6 million taxpayers were hit by tax identity theft, compared to just 271,000 in all of 2010, the Treasury Inspector General for Tax Administration reported. And the IRS paid out $5.8 billion in stolen tax refunds in 2013, according to a study by the General Accountability Office (GAO).

The increased use of electronic filing means that fraudsters are able to file a greater number of returns more quickly and with little or no documentation. This year, the number of suspicious electronic returns has been so great in some states that in February TurboTax, one of the largest tax prep software providers, temporarily suspended processing all state tax returns until it could block users from filing unlinked state returns, which are returns filed without a federal return.

Unfortunately, the number of false returns may not be coming down any time soon. A GAO report just named the IRS’s ability to address tax refund fraud and identity theft as one of the government’s top weaknesses.

If you’ve received a notice from the IRS stating that more than one return has been filed in your name, or if you believe your identity has been used fraudulently, here’s what to do:

1. Report the Fraud Quickly

Call the IRS Identity Protection Specialized Unit at 800-908-4490 right away so that they can begin the process of verifying your information. You’ll also need to fill out an identity theft affidavit, or Form 14039, so that the IRS can place an alert on your account. If your state tax return was filed falsely as well, contact your state revenue agency (for your state’s hotline, check out this list).

Also report the theft to the police. While law enforcement is unlikely to investigate, many government agencies and credit bureaus require an official theft report to help you solve the fall-out.

2. Gather Your Proof

“When you call the IRS about the ID theft, have old copies of your tax returns from the past two or three years out. It will move your case faster,” says Valrie Chambers, a CPA and Stetson University accounting professor.

By providing additional information that the IRS can check against, you strengthen your case that your return is the legitimate one. For example, an ID thief is unlikely to know that you got divorced two years ago and stopped filing jointly, but this fact can easily be checked by the IRS, giving your filed return more credibility.

While you’re searching for those forms, also pull out your driver’s license, birth certificate, passport, two recent utility bills, and, if you’re married, your marriage certificate. You’ll need to mail in copies of all these documents as well as your police report in order for the IRS to verify your tax return and rule the other one fraudulent, says CPA Art Auerbach, who has worked with tax refund theft victims.

3. Pick Up More Protection

Once you report the fraud and fill out the affidavit, the IRS should issue you a personal identification number to provide another layer of security. You’ll need to submit this PIN along with your Social Security number when you file any tax form going forward so that the IRS knows to carefully check over your account. As an identity theft victim, you’ll get a new PIN every year.

If you live in the tax fraud hotbeds of Florida, Georgia, and D.C., you can apply for a PIN without having been an ID theft victim, thanks to a new IRS initiative. To get the six-digit number, you need to register and verify your identity online. You can sign up on the IRS website.

4. Alert the Credit Bureaus

“If a thief had enough information about you to file a false tax return, he could have also opened new credit card accounts or taken out a loan in your name,” says CPA Troy Lewis, chairman of the American Institute of CPAs’ tax executive committee.

Set up free fraud alerts with the three major credit reporting bureaus, Equifax, Experian, and TransUnion. These alerts, which last 90 days but can be renewed, warn potential creditors or lenders that you are an identity theft victim and that they must verify your identity before issuing credit.

You can go a step further by placing a credit freeze on your files, which instructs the credit agencies to prevent new creditors from viewing your credit score and report. With a police report, it’s free; without one, it can cost as much $10, depending on your state.

A freeze will keep you from accessing instant credit too. If you need to apply for a loan, you will need to give the agency permission to thaw your data, and in some cases you’ll pay a fee to lift the freeze, which can take a few days.

5. Check Your Credit Report

You are entitled to a free copy of your credit report from each of the three agencies. Check them carefully for unauthorized activity. Look at your history as well as recent activity. Just because you were first alerted to the problem through a false tax return does not mean that’s where the ID theft started.

If you see errors in your report, such as wrong personal information, accounts you didn’t open or debts you didn’t incur, dispute those errors with each credit agency and the fraud department of the businesses reporting that inaccurate information.

6. Change Your Passwords

In the past, most thieves collected data about a taxpayer and then created an account at a tax preparation software site to file a false return. But Intuit, the parent company of TurboTax, says that in the past 18 months it’s seen fraudsters shift to taking over people’s existing accounts.

Thieves know that people use the same password at multiple websites. When usernames and passwords are compromised in a data breach, a thief could use them to test for a TurboTax account and file in your name.

If you have an online account at a site like TurboTax, make this password unique from any other passwords you use online. Follow this guide to make it as secure as possible. If you use your tax prep password at your bank or any other site with personal information, change that password too.

7. Be Patient

The IRS says a typical case of ID theft can take 180 days to resolve. And even after you’ve cleared up this year’s tax mess, tax and credit fraud can be a recurring problem.

When a thief beats you to filing, the IRS will flag your legit return and process it manually, scrutinizing every detail to figure out which return is authentic. This means your refund could be delayed for months.

The IRS will always pay you your refund, regardless of whether it already paid it out to a fraudster. If your tax fraud case hasn’t been resolved and you’re experiencing financial difficulties because of the holdup with your refund, contact the taxpayer advocate service at 877-777-4778.

TIME Scams

The New Way Scammers Are Fleecing America

Sending Text Message On Mobile Phone Nokia 3310
Alamy Seemed like a smart phone at the time.

That call you got probably isn't actually from the IRS

The FTC released its annual list of the top consumer complaints, and while there are some perennial gripes therein, there are also some new things consumers should watch out for.

Among the more than 2.5 million complaints, not including do-not-call complaints, identity theft once again takes the top spot—a position it’s held for 15 years running now. In 2014, 13% of the complaints the fielded by the FTC, state and federal agencies, consumer protection and other non-governmental groups pertained to identity theft.

Right behind it, debt collection complaints held onto the number two spot with 11% of the complaints, but a new entrant entered the third spot: so-called “impostor” scams.

Impostor scams are when someone calls and pretends to be from a government agency or other authority, usually the IRS, but not always. These scams often revolve around tax-related topics. The FTC says complaints about fake “IRS” agents was almost 24 times higher last year than in 2013.

“IRS employees won’t call out of the blue and threaten to have you arrested or demand specific methods of payment,” says Jessica Rich, director of the FTC’s Bureau of Consumer Protection. If the real IRS needs to get ahold of you about a tax bill, they know where you live — they’ll do it by mail.

Military personnel appear to be at a higher risk for impostor scams. While it was the third most common complaint overall last year, it was the second-highest complaint for military consumers.

“Whether it’s pretending to be the IRS during tax season, or making false promises of a lottery win, scammers are increasingly sophisticated in their efforts to deceive consumers,” Rich says.

Members of the military also seem to be targeted to a greater degree by shady educational outfits: Although complaints related to education were pretty far down the list among the general population, they ranked seventh-highest among members of the military.

Where you live also makes a difference in the likelihood that you’ll be targeted by scammers. The FTC says the most identity theft complaints come from Florida, Washington and Oregon, while the most fraud complaints come from Florida (again), Georgia and Nevada.

Nationwide, more than half of fraud complaints originate with a scammer calling the victim; about a quarter of the contacts are initiated by email. Fraud pertaining to government documents or benefits was the most common kind, making up almost 40% of complaints. Prepaid cards and wire transfers were the most common ways scammers separated victims from their money.

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