The waning
weeks of the year present opportunities to take actions that might help save
money on your 2015 tax bill, such as making deductible contributions to charity
or harvesting money-losing stocks. Now also might be a good time to start
preparing your income-tax return.
You read
that right — it's not too early to start certain preparations for tax returns
that won't be due until April.
On the
surface, that seems like a crazy notion when we haven't even made it through
the holiday season. You can't actually file a return this early — the Internal
Revenue Service won't begin accepting returns until sometime in January. Nor do
you possess the W-2s, 1099s and other supporting tax documents you'll need.
Those won't be mailed out until early next year.
But
depending on how complex your situation is, you might be able to get some of
the supporting paperwork and calculations done early — compiling year-to-date
charitable contributions, adding up medical expenses, crunching numbers on
rental properties or freelance businesses or sorting through other transactions
to see which ones might have a taxable impact. If you rely on a professional
tax-return preparer, you might be able to schedule the first available
appointments for next year.
But why
bother with April still months away? To thwart potential tax-refund thieves, of
course.
One takeaway
from an identity-theft conference held recently in Phoenix is that speed
matters. Much grief can be avoided if you can file and collect your tax refund
before the bad guys do.
Melissa
Richardson, an insurance agent in Michigan, recounted the effort and stress she
faced after her income-tax refund was snatched by criminals. When she filed
online in mid-March 2014, she was expecting a refund of about $1,100. But then
she got the notification that a return already had been filed under her Social
Security number and the refund taken, by someone in the Miami area. "The
quick refund I was expecting was anything but," she said.
She
estimates she spent 15 to 20 hours on the phone with the IRS, including waits
of up to two hours at a time. She had to fill out forms establishing her
identity and needed to file new tax returns — on paper.
This type of
white-collar fraud has grown at a brisk rate, with more sophisticated criminals
now getting involved. "For organized criminals, this is the crime of
choice," said Adam Levin, chairman and founder of IDT911, which organized
the conference.
Aside from
safeguarding personal information and making sure you're dealing with a
reputable return preparer, one of the few remaining advantages that taxpayers
have is speed.
Crooks
seeking to steal refunds do so by filing fake returns in the names of other
people, while requesting that the payments be diverted to their own accounts.
They succeed when they can get all this done before the real taxpayer files a
return. So if you can beat the crooks to the punch and file as early as
possible, you improve your chances of deflecting this danger. If you have all
your supporting tax paperwork ready by January, rather than March, April or
later, you'll be ready to go when W-2s and other tax documents arrive.
The roughly
30% of individuals who don't expect a refund typically prefer to wait to file
so they don't have to make tax payments sooner than required. That's a
legitimate reason to delay, but it needs to be weighed against the rising odds
of becoming a tax-fraud victim.
The IRS has
devoted more manpower and effort to thwarting tax-fraud risk, and much of it
has been successful. According to a study by the Government Accountability
Office, the IRS stopped $24.2 billion of fraud in 2013 but failed to prevent
another $5.8 billion that went to criminals, with some uncertainty over how
much more went undetected. The IRS is devoting more manpower to fighting ID
theft, diverting resources from other areas.
Yet the tide
hasn't yet turned.
"It has
become a very international scheme," said Shawn Tiller, executive director
of refund crime for the IRS' criminal investigations unit, speaking at the
Phoenix conference hosted by IDT911. Tax-refund crooks generally have become
more sophisticated and, because many are based outside the U.S., they're not
easy to extradite, he said.
Richardson,
the tax-fraud victim, says one lesson she learned is that preparation and speed
are important. "It took over a year and a half to clear my name with the
IRS," Richardson said. "I filed my taxes as early as I could this
year, to beat anyone else to it."
Levin at
IDT911 said taxpayers can improve their odds by safeguarding Social Security
numbers and other personal information as much as possible. But given the high
number of data breaches over the years, a lot of that information already is in
the hands of criminals, he noted.
"All
(crooks) need is a date of birth, a Social Security number and a name,"
Levin said. "Then they doctor up a W-2, and they're off to the
races."
Levin,
author of Swiped, a book on identity theft, also said it's important for
consumers to monitor incoming tax-related mail in January, making sure
mailboxes are secure and inquiring about W-2s and other documents that are slow
to arrive. Then taxpayers should get moving.
"Consumers
need to get their information as quickly as possible and file as quickly as
possible," he said.
That might
require a little added effort in the weeks before tax season actually gets
going.
