Not every person listens to their better angels, and unfortunately,
there are a lot of people in the world who are dedicated to separating you from your money. Tax season, in particular, is like scam-artist Christmas.
The combination of confusing tax forms, fear of the IRS, and juicy tax refunds is just too much for many bad people to resist. These people tend to prey on vulnerable populations, including the poor, elderly, and recent immigrants, but anyone can be targeted.
Take a look at the three most common scams below (plus a bonus warning) so that you can avoid them this tax season:
IRS Threat
The most notorious and devious plot that has been making the rounds are people who will call up victims claiming to be the IRS. These dubious IRS agents will explain that the victim owes thousands of dollars in back taxes which need to be paid immediately, or he or she will be arrested. This call can often send a victim rushing in terror to their bank to empty out their savings account.
If you receive a call like this, hang up immediately! Don’t be alarmed if the caller knows your name and some of your personal information. There have even been cases reported of victims getting a second call from someone claiming to be the police.
You should know that the IRS will never just call you out of the blue and demand money. They send most correspondence by mail. If a caller ever asks to be paid by wire transfer, gift cards, Bitcoin, or any other extremely suspicious means, it is a fraud. DO NOT PAY!
Fake Tax Consultants
If you need help preparing your taxes, always make sure you use a Certified Public Accountant with a good reputation or at least a well-known tax-preparation service, like H&R Block. (Learn how to help your tax preparer help you.)
Every tax season, hucksters set up shop and trick unsuspecting victims into letting them prepare their taxes. The easiest way to spot the fraudsters is that they charge extremely high fees for their service or take a percentage of your tax refund in payment.
Anyone who charges a percentage of your tax refund has an incentive to cheat and inflate your refund. It might be nice to get a bigger refund, but don’t think you’ll be able to keep that money. When the IRS discovers the error, you’ll be on the line for paying what’s owed.
Payment Advances
Some organizations will offer to give you a partial advance on your tax refund, often in exchange for you signing over your entire tax refund to them. They will make a huge profit off of you, and you’ll be losing money that you could probably use. These immoral lenders prey on those who are in desperate need of fast cash or who don’t realize how much of a fee these lenders take.
Be aware that for simple tax returns, the time it takes to receive a refund after filing is often just a week or two (shorter if you opt for direct deposit). If at all possible, avoid these loan sharks so you can enjoy your full refund.
Not Filing Your Taxes
This last one is not a scam, but it could result in you losing out on lots money that you are owed. Sometimes, life can get in the way, and you simply don’t have the time or knowledge to file your income tax return. As long as you do not owe taxes, you will not get in trouble for not filing your taxes.
If your employer takes taxes automatically out of your check, you may dodge the tax penalty bullet. However, it is never a good idea not to file your taxes. You may be missing out on hundreds or even thousands of dollars in refunds. This is your money that you overpaid the government.
If you DO owe taxes and don’t file a tax return, your penalties will start mounting quickly, which could lead you to serious financial trouble.
If your tax return is simple, you may be able to use a low-cost online service to file your taxes or find a nonprofit organization that will help you file your taxes for free. You can file taxes for up to three years prior and receive refunds that you are owed. There is no excuse for not filing your taxes each year and missing out on your refund!
Learn more about how to get the highest refund possible by reviewing our tax article archive. You can also make a commitment to be more financially independent this year by starting a Money Club.