Tax fraud will be a growing threat in 2025. Check out these strategies for protecting yourself from tax fraud, including early filing, recognizing scams, and securing your data.
Tax fraud has become a sophisticated and costly issue affecting millions every year. In 2024 alone, the IRS identified and stopped $2.1 billion in fraudulent tax returns. Protecting yourself in 2025 requires an informed approach to protecting personal and financial data.
Below, we’ll look at the types of tax fraud, warning signs, and actionable steps you can take to mitigate risks.
Understanding Tax Fraud
What Is Tax Fraud?
Tax fraud occurs when an individual or organization intentionally falsifies information on tax returns to evade taxes or steal refunds. This can include inflating deductions, underreporting income, or filing false returns using stolen identities.
How Tax Identity Theft Works
Tax identity theft is a common subset of tax fraud where criminals use stolen personal information, like Social Security numbers (SSNs), to file fraudulent tax returns. Victims often discover the fraud only when their legitimate returns are rejected.
Who Is at Risk?
While everyone is vulnerable, these groups are particularly targeted:
- Seniors, due to phone scams and phishing emails.
- Immigrants, unfamiliar with U.S. tax systems.
- Small businesses with minimal cybersecurity measures.
- Individuals affected by data breaches.
Warning Signs of Tax Fraud
Knowing the red flags can help you act quickly:
- Unexpected IRS Notices: Letters about unfiled returns or tax discrepancies.
- Rejected Tax Returns: Your return is denied because someone already filed using your SSN.
- Suspicious Refunds: Receiving refunds or payments you didn’t request.
- Credit Report Changes: Unexplained accounts or activities on your credit file.
How Tax Fraud Happens
Criminals use diverse tactics to perpetrate fraud:
- Phishing Emails and Calls: Fake IRS communications requesting personal details.
- Data Breaches: Hackers access and sell sensitive information online.
- Mail Theft: Stolen tax documents like W-2s and 1099s.
- Fake Tax Preparers: Fraudulent preparers filing false returns or stealing refunds.
Top Strategies for Protecting Yourself from Tax Fraud
1. File Taxes Early
Early filing is one of the most effective defenses against tax fraud. By submitting your return before fraudsters have a chance, you can secure your refund.
2. Safeguard Personal Information
Treat your sensitive data as priceless:
- Shred documents containing personal information.
- Store tax records securely, both physically and digitally.
- Never share your SSN unless absolutely necessary.
3. Use Secure Technology
Filing electronically? Take these precautions:
- File using secure, password-protected networks or a Virtual Private Network (VPN).
- Avoid public Wi-Fi.
- Ensure tax software uses robust encryption.
4. Vet Your Tax Preparer
Not all tax preparers are trustworthy.
- Verify credentials using the IRS Tax Preparer Directory.
- Avoid preparers who promise excessive refunds.
- Ensure they sign your return with a Preparer Tax Identification Number (PTIN).
5. Monitor Financial Accounts
Proactive monitoring can reveal fraud early:
- Regularly review bank and credit card statements.
- Check your credit report at least annually.
6. Be Wary of Scams
- The IRS will never contact you via email, social media, or phone.
- Scammers often demand payment via gift cards or wire transfers—legitimate authorities won’t.
- Validate any communication by contacting the IRS directly.
Steps to Take if You Become a Victim
1. Contact the IRS Immediately
- Call the IRS Identity Protection Specialized Unit at 800-908-4490.
- Submit Form 14039, Identity Theft Affidavit, to report fraud.
2. Notify Credit Bureaus
Place a fraud alert on your credit file with Equifax, Experian, and TransUnion.
3. File Complaints
- Report identity theft to the Federal Trade Commission at identitytheft.gov.
- File a police report for local documentation.
4. Secure Your Identity
Consider subscribing to identity theft protection services that offer monitoring, insurance, and recovery support.
Emerging Trends in Tax Fraud for 2025
- AI-Powered Phishing: Bad guys are using AI to craft highly convincing fake IRS emails and messages.
- Cryptocurrency Scams: Exploiting crypto earnings and losses for fraudulent returns.
- Unemployment Insurance Fraud: Criminals filing fake unemployment claims tied to tax filings.
Tips for Businesses
Businesses can also be targets of tax fraud. Here’s how to protect your organization:
- Implement robust cybersecurity measures, such as multi-factor authentication.
- Train employees to recognize phishing scams.
- Use reputable payroll services with strong security protocols.
IRS Updates and 2024 Statistics
- In 2024, over 3 million taxpayers reported identity theft-related tax issues.
- The IRS has enhanced its authentication tools, like Secure Access, to help taxpayers protect their data.
- Taxpayers who filed early had 60% fewer fraud incidents compared to those filing later in the season.
FAQs
1. How can I verify if the IRS is contacting me?
The IRS sends initial contact via mail. Verify authenticity by calling 800-829-1040.
2. Is filing taxes online safe?
Yes, but only when done through encrypted, trusted software on secure networks.
3. Can businesses become victims of tax fraud?
Absolutely. Fraudsters often target payroll systems or use fake employee filings to claim refunds.
4. What is the most effective way to prevent tax fraud?
Early filing and safeguarding personal information are the most effective strategies.
5. Should I use identity theft insurance?
Yes, it provides financial protection and expert assistance in case of fraud.
6. What should I do if my tax return is rejected due to duplicate filing?
Immediately contact the IRS and follow up with a fraud alert on your credit report.
Tax fraud is a persistent threat, but taking proactive steps can significantly reduce your risk. By filing early, securing personal information, and staying vigilant against scams, you can protect your finances and peace of mind. For added security, consider using identity theft protection services that offer monitoring, recovery, and insurance.
Stay informed and take action this tax season—because prevention is the best defense against fraud.
