Minimize the Risk of Filing Taxes Electronically

Online income tax filing has become increasingly popular the past few years, offering a number of benefits, such as greater convenience, faster processing, and a faster refund. But there’s also one potential drawback: a higher risk of fraud and theft of sensitive personal information by computer hackers and identity thieves.

According to an analysis of 2010 tax returns, 81 percent of all filers filed electronically, up from 76 percent in 2009.

Cyber-thieves have taken notice of this booming popularity of online tax filing, and they’re working overtime to come up with new ways to intercept and steal sensitive information transmitted electronically. Here are a few tips to help you minimize security risks when preparing and filing your tax return electronically:

• Check your computer and Internet connection: First update the security software on whatever computer you use to file your taxes. Go to the software’s website and download the latest versions and updates. As for your Internet connection, most experts recommend using a wired rather than a wireless connection to file taxes. If you must file wirelessly, make sure your wireless network is locked, and use a WPA2 connection if possible.
• Avoid transmitting sensitive information via email: There are minimal protections for any information transmitted via email, so if you use a tax preparer, be very selective about the information you send. As a general rule, you shouldn’t email Social Security numbers or passwords; instead, share them over the phone. And if your preparer sends you your return electronically, make sure it’s password protected.
• Watch out for fake IRS websites: Online scammers have become adept at creating very real looking websites that mirror government sites, such as the official www.irs.gov. It’s surprisingly easy to be tricked into visiting a fake Internal Revenue Service site and subsequently giving away sensitive personal information to identity thieves; so look carefully at the URL of any site you visit for tax-filing purposes. Always start out at www.irs.gov, and make sure the URLs of any pages you link to from there start with “https,” not just “http.”
• Be on guard for phishing and other scams: Proliferating around tax time, scammers send out official-looking email, supposedly from well-known tax preparers and tax-prep software vendors (e.g., H&R Block and TurboTax) asking for sensitive personal information. Some even send out fake email from the IRS warning that taxpayers face fines or penalties if they don’t supply certain information. Note that the IRS will never ask for such information via email.
• Take final security steps: After your tax return is filed, transfer any sensitive information from your computer’s hard drive to an external drive and store it in a safe place. As a final safeguard, order a credit report a few months later to look for any suspicious activity that might indicate that your identity has been stolen and thieves are trying to establish credit in your name.

Be sure to also read 9 Ways to Avoid Online Robbery for more advice on protecting your business from cyber-theft.