Prevent Tax Time Identity Theft

March 17, 2008 — -- Tax time is a stressful time for many Americans as they prepare to count every deduction and balance the books by the ever-looming April 15. But with the digital age has come an additional concern — identity theft.

Brazen thieves are not only targeting people's identities and good names, but also their tax refunds.

By filing a phony return with your name and social security number on it, the crooks are able to get your refund. In fact, the Federal Trade Commission received more than 20,000 complaints about this kind of identity theft last year.

There are ways to protect yourself and your money. "GMA" contributor Wendy Bounds gives you advice on what to do and what to look out for.

How to Keep Your Information Safe

Many people prepare their taxes with an online program, or e-mail information to their accountants. So, you really need to pay attention to security on your computer.

Don't use obvious passwords like your birth date, mother's maiden name or social security number, and don't save it in your Web browser when accessing banks. It could get leaked if you get a virus or are hacked. Also, install the latest updates to your operating system so that known Windows or Mac vulnerabilities can't be exploited by hackers.

Password Protection

You should password-protect all tax returns that you print to PDF from your tax software in order to keep your social security number secure.

Also, don't e-mail tax documents to your accountant unless they are encrypted to prevent anyone snooping on your network from gaining access to your financial information.

If you're downloading IRS W2 forms, 1099s, and other personal tax documents from your employer, make sure you create a strong password when registering to download them so it is not easily guessed by strangers.

Covering Your Paper Trail

You have to be careful offline, too, and that means covering your paper trail. Shred financial documents and paperwork with personal information before discarding them. Keep them tucked away if you employ outside help or are having work done on your house.

Also, when you postal mail your tax return to the IRS, make sure it is mailed from a secured location like the post office or an official USPS collection box. Do not let it sit in the box overnight because it could be stolen. For added security, use certified mail.

Finally, if making photo copies of your financial documents, make sure the photocopier does not store images of them in memory.

Fake IRS Calls

The IRS says it "does not send unsolicited e-mail about tax account matters" to individuals, businesses, tax exempt groups, or others. So, beware of phony e-mails, that seem to be from your bank or the IRS, seeking personal information or financial data.

This is called phishing and often promises a refund if you click on a link in the e-mail. Similarly, if you receive an unsolicited phone call from someone claiming to represent the IRS, do not give personal information over the phone. Hang up, and call the IRS directly.

If Your Information Has Been Compromised...

If you think you are a victim of fraud, take action immediately. Report your suspicions to the IRS as well as the IRS taxpayer advocate service, an arm set up to help people who encounter economic harm. You should also report this to the FTC on its Web site.

You should also file a police report. This could help you with creditors who want proof of the crime and a fraud alert on your credit reports, and look for inquiries from companies you haven't contacted, accounts you didn't open, and unexplained debts.

When someone tries to open up a credit account in your name, you should get a call from the bureau. Close any accounts that have been tampered with or erroneously established.

The main thing you need to know is that identity thieves are becoming bolder and more brazen. Consumers who've been vaguely aware of identity theft before must now get very serious about protecting themselves.