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How to protect yourself from tax-related identity theft

Tax season is here, and though you technically have until April 15 to file your returns, you might want to submit yours sooner than that — at least if you want to avoid potential identity theft (and a whole lot of hassle).

Tax-related identity theft is a growing problem in America, and the more security breaches, information hacks and digital business we do as a society, the more consumers who fall victim to it. In fact, in 2016 alone, thieves stole more than $21 billion in tax refunds as a result of this simple, yet clever, form of identity theft.

Have you fallen victim to Tax ID Theft and need help dealing with the financial ramifications? Or just want to know ways to prevent it from happening to you? This guide can help.

What is Tax-Related Identity Theft?

Tax identity theft occurs when someone files a tax return using your Social Security Number. In some cases, thieves do this in order to claim a fraudulent tax refund. In others, they may have used your SSN to obtain employment. When this occurs, their employer will report all income to the IRS using that SSN. When you don’t report that same income on your own return, the IRS will flag it as suspicious and require you to pay taxes on that additional income. It may even lead to a tax audit.

Victims of tax-related identity theft face serious financial ramifications. Not only are they unable to file their own returns (or claim their tax refund), but it also may indicate other financial vulnerabilities are at work. Unauthorized loans, credit cards and other accounts may have been opened using the victim’s identity. Victims are typically encouraged to freeze their credit when tax-related identity theft occurs. They may also need to work with creditors and credit reporting agencies to clear their name of any fraudulent activity.

How Does Tax Identity Theft Happen?

Generally, tax-related identity theft — and all identity theft, for that matter — occurs after a person’s sensitive information has become public or fallen into the wrong hands. This often happens due to security breaches or digital data hacks, like the recent ones involving mortgage dataQuora users and Marriott/Starwood Hotels customers.

Tax-related identity theft often occurs in February and early March, as thieves must file the fraudulent returns before the real taxpayers file their legitimate ones. Fortunately, the IRS is taking steps to reduce identity theft from many angles. The agency has hired more employees dedicated to stopping fraud, implemented additional safeguards and also changed many of the standards used to file and authorize returns. Despite these efforts, tax-related identity fraud does still occur — and it’s important everyday Americans are ready should it happen.

How to Know You’ve Been Victimized

If you’ve fallen victim to tax-related identity theft, there are several ways you might learn of it. First, your legitimate tax return may be rejected. When you go to e-file your tax return, the IRS will reject it if a return has already been filed for your Social Security Number. If you filed a paper return, you would get a rejection notice in the mail, alerting you that your return has already been filed.

In the event the thief used your SSN to obtain a job, you likely won’t learn of the issue until your returns have been filed and processed. Once the IRS sees that your reported income does not match the income reported by employers to your Social Security Number, they will send you a later saying you failed to report income or that you owe additional taxes.

It’s important to note that all communications from the IRS will come via mail. The agency will not call, text or email you regarding your returns or any suspicious activity. Do not provide sensitive information to anyone pretending to be an IRS agent via these methods and report the issue to the U.S. Treasury Inspector General for Tax Administration.

What to Do Next 

If you discover that you are the victim of tax identity theft, you’ll need to report it to both the IRS and the Federal Trade Commission.

Specifically, you’ll need to:

  •  Fill out Letter 5071C, if you’ve received it. The IRS may send you Letter 5071C if it flags your return as suspicious or suspects fraud has been committed. This form requires you to verify your identity and breaks down the steps for doing so. Follow these directions exactly and take any additional steps recommended once your identity has been confirmed.
  •  Use Form 14039 to alert the IRS of the issue. Fill out the form, along with a copy of your Social Security card and driver’s license, to Internal Revenue Service, P.O. Box 9039, Andover, MA, 01810-0939. Make sure to send the letter by certified mail to ensure it arrives safely and untampered with. If you received a notice in the mail, include this with your letter as well.
  • Apply for an Identity Protection PIN. These are six-digit numbers that the IRS will use to confirm your identity on all future returns and filings.
  • Notify the Federal Trade Commission. File an identity theft report at in order to alert the FTC. This website can also help you create a plan of action for responding to identity theft.
  • Contact your state tax agency. There may be additional steps your state requires when identity theft occurs.

If you tried to e-file and got rejected, you should go ahead and file your paper return and pay any taxes you owe via mail. If at any point you need help in the process, call the IRS Identity Protection Specialized Unit at 800.908.4490 for assistance. An agent can walk you through the appropriate steps to both report and respond to the theft.

The Road Ahead – Rebuilding Your Credit and Finances

Though the IRS says it typically takes 120 days or less to address cases of identity theft, according to USA Today, it often takes as many as 278 days to resolve a claim and get your legitimate refund.

This doesn’t even include the time and resources needed to address other consequences of identity theft — such as unauthorized loans, credit cards, purchases and more. Depending on how deep the theft goes and how available your personal information was, the financial ramifications can often last months or even years.

The important thing to do is to remain vigilant. This means:

  • Pulling your credit report and monitoring for suspicious financial activity. Look at your credit report and make sure there are no unauthorized accounts or loans to your name. Contact the creditors and close these if necessary. You should also check with your banks and lenders to ensure there is no suspicious activity. If there is, dispute the charges and follow the steps to have those waived from your accounts.
  • Placing a fraud alert on your credit profile. Contact one of the three major credit reporting bureaus (Experian, TransUnion or Equifax) and ask that a fraud alert be placed on your record. This can prevent thieves from opening up new credit cards or loans in your name. You can also request a total credit freeze if you want to be extra safe.
  •  Considering credit monitoring. Though these services come at a fee, they can help you keep tabs on your credit profile — as well as any changes that occur on it.
  • Working with the Social Security Administration. Report the identity theft and take any additional steps recommended. In severe cases, you may need to apply for a new Social Security Number.
  • Continuing to work with the IRS and FTC as necessary. Respond quickly to any FTC or IRS request. Any delays could delay the resolution of your case and the delivery of your refund.

In some cases, you may want to involve a lawyer — especially if your investments, retirement accounts, mortgage or other major financial products have been affected. They can help you traverse the legal issues that crop up with creditors, lenders and financial institutions along the way.

Your Options for Financial Recovery 

Many victims of tax-related identity theft experience cash flow issues or must deal with additional debt as a result of the experience. They also may be unable to take out traditional loans or credit accounts due to the impact the theft has had on their credit score and profile.

When this occurs, victims have these options:

  • A Tax Advance Loan – Tax Advance Loans (TALs) give you an advance on your projected refund. While sometimes helpful, these aren’t the best idea if your refund is small. They can also impact your credit score and often require a significant chunk of your refund to secure.
  • A personal loan – Personal loans can offer access to more cash, as well as more lenient (and longer) repayment terms. These can be especially helpful for victims hit hard by their identity theft.
  • Credit-builder loans – These loans are beneficial if your credit score was severely impacted by the theft. Typically offered through community banks and credit unions, they help you improve your score by reporting your consistent payments to credit bureaus.
  • Secured credit cards – If the identity theft required you to close your credit accounts, a secured credit card can be a good option. These require you to deposit money up front, as collateral. They then function like traditional credit cards, while also helping you establish good credit standing (as long as you pay on time, every time).
  • Help from loved ones – In many cases, family members, friends and other loved ones are willing to provide financial help. They might offer no-interest loans or even gifts to help you get through your rough patch.

There’s always the option to wait it out, too. If the damage was minimal or you weren’t relying on your refund for financial stability, you may be able to await the IRS’ resolution of your case.

Reducing Your Risk

If you aren’t already the victim of tax-related identity theft, you should take action to ensure you never become one. This means protecting your personal information, shredding sensitive documents and using strong passwords on all online accounts.

You can also:

  •  Lock your mailbox.
  • Use a secure computer on a secure network when e-filing.
  • Check your credit report annually for suspicious activity.
  •  Install a firewall and antivirus software on your computer.
  • Learn how to recognize phishing emails and fraudulent requests for information.
  • Keep sensitive documents (like your Social Security card) in a safety deposit box.
  • Only provide your Social Security Number when absolutely necessary.

You should also file your returns as early as possible. A fraudster cannot file a return using your Social Security Number if one has already been filed. Make it a point to file your taxes as soon as you have the information necessary to do so.


Will You Have to Pay Taxes on Your Social Security Benefits?

Thanks to the steady march of inflation, more and more retirees are forced to pay income taxes on their Social Security benefits.

Why Social Security is taxable

Once upon a time, Social Security benefits were completely tax-free. Then, in 1983, President Reagan signed an amendment making up to 50% of Social Security benefits taxable. In 1993, President Clinton signed a bill that (among other things) made up to 85% of "higher-income" Social Security recipients' benefits subject to taxation. Unfortunately, that bill failed to provide a method for raising the tax's income thresholds in response to inflation, so what was once a "higher-income" threshold now includes a much wider range of Social Security beneficiaries.

How to find out if your benefits will be taxed

The first step in determining whether your benefits will be taxable is to compare your income to the base threshold. If you're already receiving Social Security benefits, then your annual Form SSA-1099 will tell you how much you received in benefits during the last year. If you're not yet receiving benefits, you can look at your Social Security statement and use the estimated benefit from that form. Just take the monthly estimated benefit number and multiply it by 12 to see how much Social Security money you'll be getting per year.

Next, divide your annual Social Security benefit by two. Add this number to any other taxable income you received during the year, plus tax-exempt interest earnings. The total is what's known as your "combined income," and if it exceeds a certain threshold based on your filing status, then your benefits will be at least partially taxable:

Filing statusUp to 50% of Benefit Taxable if Combined Income Exceeds...Up to 85% of Benefit Taxable if Combined Income Exceeds...
Married filing jointly $32,000 $44,000
Married filing separately (and you lived with your spouse throughout the year) $0 $0
Other $25,000 $34,000

Social Security card and calculator


Note that "up to" that percentage of your Social Security benefit will be taxable if your combined income exceeds the threshold. You may be taxed on a lower percentage of your benefit depending on the makeup of your income. To figure out how much of your benefit may be subject to taxation, check out IRS Publication 915 or simply plug some numbers into our handy calculator.

How to minimize your tax bill

For most retirees, it's distributions from traditional IRAs and 401(k) accounts that push their combined income over the threshold and cause their Social Security to be taxed. Unfortunately, you don't have complete control over how much money you take out of these accounts: The IRS requires you to take mandatory minimum distributions once you hit age 70-1/2. Your only option with traditional retirement accounts is to limit yourself to the required minimum distribution (assuming that's enough for you to live on) and hope that that income won't be enough to make your benefits taxable.

If you're fortunate enough to have a Roth, you're in a much better position to control your Social Security taxes. Roth distributions are not taxable income, so they don't count toward the income threshold that determines whether your benefits are taxable. And there's no required minimum distribution from Roth accounts, so you can take distributions when it makes the most sense for you and leave the rest to keep growing for as long as possible.

Planning for a low-tax retirement

Assuming you're still at least a few years from retirement, you can take steps now to minimize taxes on your Social Security benefits. If you don't already have a Roth account, now is a good time to set one up and fund it to the max. With that account plus your traditional retirement accounts, you'll be able to tinker with your distributions in such a way as to minimize your income for purposes of Social Security taxation thresholds. And if you're already retired, consult with a tax professional for assistance in lowering your taxable income. Tax planning can do a surprising amount of good, even if you're stuck with fixed, taxable sources of income.





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34 things you need to know about the incoming tax law

It's official. Congress has ushered through the first major tax overhaul since Ronald Reagan was president.

The measure, which President Trump signed into law on Friday, is about to shake up life for millions of Americans. It will redistribute the country's wealth. It could sway decisions about whether to buy a home, or where to send kids to school. It could even affect when unhappy couples decide to get a divorce.

As the bill becomes law, here are 34 things you need to know.

1. This is the first significant reform of the U.S. tax code since 1986.

Reagan signed major legislation for corporations and individuals in 1986. Since then, serious tax reform has eluded Republicans, though they repeatedly called for it as the tax code became longer and more arcane.

2. Changes have been made to both individual and corporate tax rates.

Individual provisions in the new legislation technically expire by the end of 2025, though some people expect that a future Congress won't actually let them lapse. Most of the corporate provisions are permanent.

3. Tax reform will increase deficits by $1.46 trillion over the next decade.

That's the net number that's been crunched by the nonpartisan Joint Committee on Taxation. The future law's contribution to the debt will likely be even higher if individual tax cuts are re-upped in eight years.

4. There are still seven tax brackets for individuals, but the rates have changed.

Americans will continue to be placed in one of seven tax brackets based on their income. But the rates for some of these brackets have been lowered. The new rates are: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Find out where you fit here.

5. The standard deduction has essentially been doubled.

Republicans want fewer people to itemize their taxes. To achieve this, they've nearly doubled the standard deduction. For single filers, the standard deduction has increased from $6,350 to $12,000; for married couples filing jointly, it's increased from $12,700 to $24,000.

6. The personal exemption is gone.

Previously, you could claim a $4,050 personal exemption for yourself, your spouse and each of your dependents, which lowered your taxable income. No longer. For some families, the elimination of the personal exemption will reduce or negate the tax relief they get from other parts of the reform package.

7. The state and local tax deduction now has a cap.

The state and local tax deduction, or SALT, remains in place for those who itemize their taxes -- but now there's a $10,000 cap. Previously, filers could deduct an unlimited amount for state and local property taxes, plus income or sales taxes.

8. The child tax credit has been expanded.

The child tax credit has doubled to $2,000 for children under 17. It's also now available, in full, to more people. The entire credit can be claimed by single parents who make up to $200,000, and married couples who make up to $400,000.

9. There's a new tax credit for non-child dependents, like elderly parents.

Taxpayers may now claim a $500 temporary credit for non-child dependents. This can apply to a number of people adults support, such as children over age 17, elderly parents or adult children with a disability.

10. Fewer people will have to deal with the alternative minimum tax.

The alternative minimum tax, a parallel tax system that ensures people who receive a lot of tax breaks still pay some federal income taxes, remains in place for individuals. But fewer people will have to worry about calculating their tax liability under the AMT moving forward. The exemption has been raised to $70,300 for singles, and to $109,400 for married couples.

11. And the mortgage interest deduction has been lowered.

Current homeowners are in the clear. But from now on, anyone buying a new home will only be able to deduct the first $750,000 of their mortgage debt. That's down from $1 million. This is likely to affect people looking for homes in more expensive coastal regions.

12. None of this will affect your 2017 taxes.

Americans won't need to worry about these changes when they start filing their 2017 tax returns in about a month. The new laws will first be applied to 2018 taxes.

13. By the way, you can still deduct student loan interest.

The deduction for student loan interest, which is up to $2,500 per year, is safe.

14. You can still deduct medical expenses.

The deduction for medical expenses wasn't cut. In fact, it's been expanded for two years. In that time, filers can deduct medical expenses that add up to more than 7.5% of adjusted gross income. In the past, the threshold for most Americans was 10% of adjusted gross income.

15. If you're a teacher, you can still deduct classroom supplies.

The deduction for teachers who spend their own money on school supplies was left alone. Educators can continue to deduct up to $250 to offset what they spend on classroom materials.

16. The electric car tax credit lives on.

Drivers of plug-in electric vehicles can still claim a credit of up to $7,500. Just as before, the full amount is good only on the first 200,000 electric cars sold by each automaker. GM, Nissan and Tesla are expected to reach that number some time next year.

17. Home sellers who turn a profit keep their tax break.

Homeowners who sell their house for a gain will still be able to exclude up to $500,000 (or $250,000 for single filers) from capital gains, so long as they're selling their primary home and have lived there for two of the past five years.

18. 529 savings accounts can be used in new ways.

In the past, funds invested in 529 savings accounts wasn't taxed -- but it could only be used for college expenses. Now, up to $10,000 can be distributed annually to cover the cost of sending a child to a "public, private or religious elementary or secondary school." This change is a win for Education Secretary Betsy DeVos.

19. And tuition waivers for grad students remain tax-free.

Graduate students still won't have to pay income taxes on the tuition waiver they get from their schools. Such waivers are typically awarded to teaching and research assistants.

20. But say goodbye to the tax deduction for alimony payments.

Alimony payments, which are codified in divorce agreements and go to the ex-spouse who earns less money, are no longer deductible for the person who writes the checks. This provision will apply to couples who sign divorce or separation paperwork after December 31, 2018.

21. The deduction for moving expenses is also gone ...

There may be some exceptions for members of the military. But most people will no longer be able to deduct the cost of their U-Haul when they move for work.

22. As is the tax preparation deduction ...

Before tax reform passed, people could deduct the cost of having their taxes prepared by a professional, or the money they spent on tax prep software. That break has been eliminated.

23. ... The disaster deduction ...

Losses sustained due to a fire, storm, shipwreck or theft that aren't covered by insurance used to be deductible, assuming they exceeded 10% of adjusted gross income. But now through 2025, people can only claim that deduction if they've been affected by an official national disaster. That would make someone whose house was destroyed by a California wildfire potentially eligible for some relief, while disqualifying the victim of a random house fire.

24. ... And the reimbursement for bicycle commuters.

The tax code used to let you to knock off up to $20 from your income per month for the costs of bicycle commuting to work, assuming you weren't enrolled in a commuter benefit program. That's gone.

25. Almost everyone is now exempt from the estate tax.

Before tax reform, few estates were subject to the estate tax, which applies to the transfer of property after someone dies. Now, even fewer people have to deal with it. The amount of money exempt from the tax -- previously set at $5.49 million for individuals, and at $10.98 million for married couples -- has been doubled.

26. Adjustments for inflation will be slower.

The new legislation uses "chained CPI" to measure inflation. It's a slower measure than what was used before. Over time, that will raise more money for the federal government, but deductions, credits and exemptions will be worth less.

27. Oh, and the individual mandate on health insurance has been scrapped.

Republicans failed to repeal Obamacare earlier this year, but they managed to get rid of one of the health law's key provisions with tax reform. The elimination of the individual mandate, which penalizes people who do not have health care, goes into effect in 2019. The Congressional Budget Office has predicted that as a result, 13 million fewer people will have insurance coverage by 2027, and premiums will go up by about 10% most years.

28. You won't be able to file your tax return on a postcard.

Trump said H&R Block would go out of business after tax reform because filing taxes would become so simple. Not quite. While doubling the standard deduction will ease the process for some individuals, there's still a web of deductions and credits to work through. And for small businesses, filing could become even more complicated.

29. The corporate tax rate is coming down.

The corporate tax rate has been cut from 35% to 21% starting next year. The alternative minimum tax for corporations has been thrown out altogether. Earnings are expected to go up as a result.

30. Pass-through entities will also get a break.

The tax burden by owners, partners and shareholders of S-corporations, LLCs and partnerships -- who pay their share of the business' taxes through their individual tax returns -- has been lowered via a 20% deduction. The legislation includes a rule to ensure owners don't game the system, but tax experts remain concerned about abuse of this provision.

31. Not all CEOs think they'll use their savings to create jobs, though.

Just 14% of CEOs surveyed by Yale University said their companies plan to make large, immediate capital investments in the United States following tax reform. Capital investments, like building plants and upgrading equipment, can spur hiring.

32. Plus, the way multinational corporations are taxed is about to change.

The U.S. is switching to a territorial system of taxation, which means companies won't owe federal taxes on income they make offshore. To help the transition, companies will be required to pay a one-time, low tax rate on their existing overseas profits -- 15.5% on cash assets and 8% on non-cash assets, like equipment in which profits were invested.

33. By the way, there's a provision to rein in executive pay at nonprofits.

The legislation includes a new 21% excise tax on nonprofit employers for salaries they pay out above $1 million. That may mean some well-paid executives at nonprofits take a pay cut.

34. Businesses won't be able to write off sexual harassment settlements.

New Jersey Democratic Senator Bob Menendez's amendment born of the #MeToo momentmade it all the way through. Companies can no longer deduct any settlements, payouts or attorney's fees related to sexual harassment if the payments are subject to non-disclosure agreements.

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