If you hate doing your own taxes, you’re not alone! More than 60% of Americans hire tax professionals to fill out those seemingly unending forms.
But while having someone else do your taxes can take a load off your shoulders, if you don’t choose the right person, you might have bigger problems. There are unscrupulous tax preparers out there looking to make a quick buck – and can get you in all sorts of hot water by finding less-than-legal ways to boost your refund or take advantage of you.
Here are 3 of the most popular tax scams committed by tax preparers, followed by some tips on what to look for when choosing who will help you prepare your taxes:
Top 3 Tax Scams to Watch Out for
1. Depositing Your Refund in Their Bank Account
Issues with refund skimming and excessive fees often start with a simple request. If a tax preparer offers you an advance on your refund, with the requirement that you allow your refund to be deposited straight into their bank account, this is not a good sign. Alternately, they may tell you that they’ll take their fee out of your refund, but when it comes time to pay up, suddenly their fees have tripled. To make matters worse, they have the refund and you don’t.
How to protect yourself: Never allow a private tax preparer to deposit your refund in their own bank account. Some larger companies will issue you a debit card with your refund (although the IRS will now do this for you as well, with fewer fees) and some still offer tax refund anticipation loans (RALs). Whatever method you use to get your refund, make sure that you get a copy of your tax return where it is clearly stated what your refund will be. You should also get an invoice or other statement from the tax preparer that clearly states their fees – including a range for “difficult” returns, so they can’t claim later that the tripled fee is due to your return being more challenging than originally thought.
2. Identity Theft
The IRS is aware of several identity theft scams where individuals pose as tax preparers in order to obtain people’s financial information. Some will even pose as the IRS itself in order to demand information or just cash. And with the rise of e-filing, more and more people are falling prey to phishing scams, where someone contacts you and says they’re from the IRS, and requests personal information or money. The IRS never, ever contacts anyone randomly by email. They will always send you a letter or call. If you are concerned about whether a contact from the IRS is genuine, you can call them at 800-829-1040 to ask whether they sent you any communications.
How to protect yourself: Always use a trusted, recommended tax preparer to do your taxes. If they want a lot of money up front, say they need more information than what’s on your forms, or don’t seem to actually know what they’re doing, it should raise some suspicions.
3. Fraudulently Manipulating Returns for Larger Refunds
One method that iffy tax preparers sometimes use to reel in new clients is to claim that they can get a much larger refund for you than anyone else can. Sometimes, they’ll even offer to work for a percentage of the refund, instead of a flat fee. Unfortunately, the way most of these preparers will get you a bigger refund is by adding in charitable deductions you never made, claiming people as dependents who really aren’t, or making other fraudulent changes to your tax return. And in many cases, people who get these enormous refunds are so pleased by their “super accountant” that they refer friends and family members, who then also get fleeced.
How to protect yourself: Always double check the tax forms your accountant prepares before signing them and turning them in. You’re the one who has to answer if you get audited by the IRS and you could get in serious trouble for fraudulent information.
Tips For Choosing a Tax Preparer
- How do they market themselves? Be very wary if someone claims they can get everyone a larger refund than other preparers.
- How do they charge? You should avoid preparers whose fee is a percentage of the refund.
- Will they let you see the tax return once it’s done? If they refuse to give you a copy of your tax return or allow you to see it before it is filed, that is a big red flag.
- How many years have they been in business? If something does go wrong, you’ll need them to help you answer questions or clarify issues months or years after the return was filed. If they are not around, they won’t be much help.
- Check their credentials. Only tax attorneys, certified public accountants (CPAs), and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection, and appeals. Other people may only represent you on an audit of a return that they personally completed for you, so if you have issues from prior years, they legally can’t help.
- Ask if they are affiliated with any professional organizations. The best are those that require its members to get continuing education or provide resources, as well as holding them to a professional code of ethics. While this can’t screen everyone out, many fly-by-night tax preparers won’t want to pay the money to join.
- A trustworthy tax preparer will ask to see your documentation, forms, and receipts, and will need to ask you a lot of questions. This allows them to determine whether you qualify for different tax breaks, or how to classify your expenses. This helps you to avoid penalties later. If the tax preparer has few questions, or even no questions, that should cause some concern.
In addition, don’t forget these three important rules that the IRS wants you to keep in mind when you file your return.
- You are responsible and liable for the content of your tax return. Even if someone else fills it out, you’re ultimately responsible for what’s on it.
- Anyone who promises to get you a bigger refund without knowing your tax situation may be misleading you. How much of a refund you get is extremely situation-specific. They can’t legitimately promise everyone a bigger refund if they don’t know anything about you.
- Never sign a tax return before checking that it is accurate. Once you sign your return, you’re saying that you agree with the contents and you are confident they are correct. If you can’t say those things, you shouldn’t sign it.
This tax season, keep your eyes open and don’t let the promise of a big payoff keep you from doing a thorough check on your tax preparer. We’re all looking for a bigger refund, but we need to do it safely.
Have you gotten any sales pitches from these types of shady tax preparers? What did you do?