E-Filing Safety Tips

Last year, 70% of all individual returns were e-filed, and it’s likely to go up this year with the general growth of consumer technology use and new tax preparer requirements.  This year the IRS requires any tax preparation enterprise that files 100 or more returns to default to e-filing.  The taxpayer can request to opt-out, but the tax preparer has to e-file unless the taxpayer specifically says no.  In many ways this makes sense, as it is faster, more accurate and cheaper  -- try 19-cents e-processing cost vs. $3.29 for paper returns.    While I default to agreeing with anything that is associated with the words cheaper and easier, I did start to wonder about risks associated with e-filing. 

The main issue is security.  Your tax return is an identity thief's version of the code to enter Fort Knox.  If you’re e-filing with a direct deposit option for your refund (which is a good idea) both your social security number and your bank account are in that file.  This certainly means you want to do due diligence on how your e-filing is being done.  The IRS lets you file with them for free  if your income is less than $58,000 a year.  If you make more than that, you can still use the IRS e-file site, but you have to enter all your information on the “fillable forms” that the site uses.  If you use tax software there is typically functionality embedded that helps you e-file.  Again, this is where you want to check out how it works in advance.  There are also web-based filing services, which I would approach with significant caution.

Beyond an actual interception of your return during filing there are two other things to watch for.  As I mentioned in an October post on preventing cybercrime, a popular phishing scam is to send you an e-mail ostensibly from the IRS.  What you need to remember is that the IRS doesn’t do e-mail.   

 "The IRS will never e-mail you about your taxes – never," IRS spokesman Dan Boone said in a Feb. 28 aol.com article

If you do get “contacted” by the IRS in an e-mail the advice is to simply forward the fraudsters work to phishing@irs.gov and let them take it from there. 

Another concern is that if you’re using tax software, chances are the program lets you save a copy on your computer.  Saving your tax return is helpful, if it’s kept in a safe place, as in not on your PC or lap top. If you have a laptop and it gets stolen, there’s no happy ending to that story.  Also, if you have peer-to-peer file sharing software on your machine, it’s possible you could end up accidentally sharing this info with the wrong person.

All of this is not to say stick with pencil and paper.  It is however, a call to add to the top of your tax to-do list a security plan.  The only thing that can be generated from tax filing that is worse than an audit is identity theft.