3 tax scams to watch out for in 2017

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Tax season is right around the corner and, unfortunately, a surge in tax scams is likely to come with it. Tax scams can take many different forms, but most tax scams fall under three major categories: fraudulent returns, phone scams, and phishing. Most tax scams, though, are preventable, so here's what you need to know to avoid becoming a victim.

Fraudulent returns

The number of fraudulent tax returns has soared in recent years, with thieves using the Social Security numbers of unsuspecting Americans to file bogus tax returns with the goal of pocketing tax refunds they're not entitled to.

Fortunately, the IRS has stepped up efforts to combat this, and it seems to be working so far. In fact, its recently improved early detection system enabled the IRS to identify 35,000 fraudulent returns in the first couple months of 2016's tax season and prevented the issuance of $193.8 million in fraudulent refunds.

Despite the IRS' best efforts, there is still the chance that your identity will be used to file a fraudulent return. And many people don't realize they're a victim until their actual tax return is rejected by the IRS -- since it only accepts one return per Social Security number.

While this scam is not totally avoidable, there are some ways you can lower your risk. First and foremost, try to file your tax return as soon as you're able to do so. As I mentioned, the IRS only accepts one tax return per Social Security number, so if you file yours, it makes it impossible for a crook to file another with your information.

Also, to prevent yourself from becoming a victim in future tax years, it's important to develop and use good habits with your identifying information. For example, only use your Social Security number when it's absolutely necessary, check your credit report regularly for suspicious activity, and don't throw papers with sensitive information like your Social Security number or bank account information in the trash.

See a guide to the most commonly-used tax forms:

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Guide to commonly-used US tax forms
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Guide to commonly-used US tax forms

The 1040 family of tax forms is for federal income tax and is absolutely essential for all.

The 1040EZ form is the simplest version and is typically filed by those who:

  • Have no dependents
  • Are younger than 65
  • Earned less than $100,000
  • Don’t plan to itemize deductions

Form 1040A is more comprehensive than 1040EZ, but simpler than the regular 1040. It's beneficial for those who earn less than $100,000 and don’t have self-employment income -- but who want to make adjustments to their taxable income, such as child tax credits or deductions for student-loan interest. Note that it doesn't allow for itemized deductions.

Form 1040 is filled out by those who make $100,000 or more, have self-employment income or plan to itemize deductions.

The W-2 is completed by employers document each employee's earnings for the calendar year. You will want to take a look at this tax form for important information you'll need to fill out your 1040, 1040A or 1040EZ. 
The 1098 form is filled out by those who:
  • paid interest on a mortgage
  • paid interest on a student loan 
  • paid college tuition
  • donated a motor vehicle to charity

The 1099 series is reports all income that isn’t salary, wages or tips, and must be reported on both the state and federal level.

1099-DIV reports dividends, distributions, capital gains and federal income tax withheld from investment accounts, including mutual fund accounts.

1099-INT trakcs interest income earned on investments.

1099-OID (Original Issue Discount) is provided if you received more than the stated redemption price on maturing bonds.

1099-MISC documents self-employment earnings, as well as miscellaneous income such as royalties, commissions or rents. It covers all non-employee income that is not derived from investments.

If you receive a refund that you're unable to pay in full, you can request a monthly installment plan using Form 9465.
Don't forget to notify the IRS if you move! Use Form 8822 to change your address with the Internal Revenue Service. Otherwise, notices, refunds paid with a paper check and other correspondence relating to your personal, gift and estate taxes will be sent to your former address.
Anyone who has been employed by a company has completed a Form W-9. The W-9 is used by employers for payroll purposes -- and the information on the W-9 is used to prepare employee paychecks during the year and W-2 forms at the end of the year. 
The W-4 is an IRS form completed for employers know how much money to withhold from your paycheck for federal taxes. Accurately completing your W-4 can both ensure you don't have a big balance due at tax time and also prevent you from overpaying your taxes.
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Phone scams

One of the most rampant type of tax scam involves phony calls from "IRS agents." Phone scams have cost victims over $23 million over the past few years, and that figure is likely to rise. In fact, just a few days before I wrote this article, I received a call from a tax scammer. My caller ID even said "IRS-IMPORTANT" when they called. Fortunately, I know better, and after reading this, so will you.

There are a few versions of this scam, but in general, the caller will claim to be an IRS agent and that you owe tax for one reason or another. For example, one variation involves the scammer claiming a "federal student tax" remains unpaid (which is true -- because the tax doesn't exist). Or, another variation involves the scammer telling the victim they are entitled to a huge refund in order to steal money and/or identifying information.

The good news is that phone scams are easy to avoid if you know a few simple rules. Specifically, the actual IRS will never:

  • Call to demand immediate payment or call at all without first mailing you a bill
  • Demand that you pay taxes without an opportunity to appeal or question the amount owed
  • Require a specific payment method
  • Ask for a credit/debit card number over the phone
  • Threaten to have you arrested for not paying

If any of the following are true about an "IRS agent" who calls you, hang up immediately and report the scam to the IRS. Even if you think you might owe taxes, be safe -- hang up anyway and call the IRS at (800) 829-1040. If you do owe tax, they'll be happy to help you, and you'll have the peace of mind of knowing you're talking to the right people.

Phishing scams

Last but certainly not least on the list of scams to watch out for in 2017 are phishing scams. The IRS saw an alarming 400% surge in phishing and malware incidents during the 2016 tax season, so it's a safe bet they'll continue to be a major problem.

For the most part, these are in the form of fake emails, but could also be sent as text messages. Whichever form they take, they're designed to trick victims into thinking they come directly from the IRS. And these have gotten much more sophisticated over the years -- some of the emails do look official, and may redirect you to a website that looks very similar to the official IRS website (irs.gov).

Like phone scams, these take a variety of forms. One popular variation of the phishing scam involves an email that appears to be from the IRS and takes you to a fake website designed to mimic the real IRS website and instructs you to "update your IRS e-file immediately" in order to steal personal information.

Also like phone scams, these are fairly easy to avoid if you know what to look for. To avoid becoming the next phishing tax-scam victim, keep these guidelines in mind:

  • The IRS doesn't initiate contact with taxpayers by email, text message, or social media. Period.
  • The official IRS website is www.irs.gov and any legitimate IRS webpage will begin with irs.gov. Don't be fooled by close variations (such as irsgov, irs.net, or similar).

If you do receive an email claiming to be from the IRS and you weren't expecting one, don't reply, click on any links, or open any attachments. Forward the email as is to phishing@irs.gov and delete the original email.

The best defense is to know what to look for

Phishing and phone scams can be easily avoided if you know what to look for, and the chance of a fraudulent return in your name can be greatly reduced by filing your return quickly and safeguarding your identifying information. Like many other types of scams, the best defense against tax scams is knowing what to look for.

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RELATED: See the world's biggest tax havens:

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World's biggest tax havens
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World's biggest tax havens

Cayman Islands

(Photo via Alamy)

Singapore

(Photo by Pham Le Huong Son via Getty Images)

United States

(Photo by Lissandra Melo via Shutterstock)

Switzerland

(Photo via Getty Images)

Hong Kong

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Luxembourg

(Photo via Getty Images)

Lebanon

(Photo via Getty Images)

Germany

(Photo via Getty Images)

Jersey

(Photo by David Clapp via Getty Images)

Japan

(Photo by Sean Pavone Photo via Getty Images)

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