Security 101: How to Keep Your Tax Information Safe

​Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! As we approach the end of the year, tax season steadily approaches. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!
 
In honor of the holiday season, our last article was dedicated to explaining everything you need to know about the gift tax! We took a little trip down memory lane to discover when the gift tax was first implemented and how it has evolved in the century since. We also explained the key differences between the gift tax and the estate tax, as well as how these types of taxes influence the distribution of personal wealth. Did you know there’s a yearly gift tax exclusion, which allows you to give away a certain amount of value without having to pay taxes? Did you know there’s also a lifetime gift tax exclusion, which caps the amount a single individual can give tax-free throughout the course of their life? Don’t worry–we covered both! The yearly gift tax exclusion is subject to change, but we disclosed the amount for 2021, which will apply this tax season! And, to make sure all of our bases were covered, we also detailed exactly how to file a gift tax return. To learn everything you need to know about the gift tax, you should definitely check out our last article! 
 
As more of our personal records migrate online, protecting our sensitive information isn’t as easy as shredding a few documents. With data leaks, cyber-hacking, and scams altering people’s lives every day, we must each make a concerted effort to protect ourselves. Old tax records present an opportunity for others to steal your identity or gain access to further financial information. Today, we’ll be sharing a few tips for keeping your information safe. You can use this article as a point of reference for your own security strategies, whether you file taxes for your family or own a small business. CPAs deal with other people’s sensitive information daily and are held to a higher standard than most when it comes to security. For this reason, we’re well-versed in how to store, dispose, and secure personal documents. As we offer our tips, you might check these off of your Security 101 Checklist! 
 
Why is securing your tax records important? 
 
According to a study performed by Accenture, about sixty percent of small businesses that experienced a data breach or a cyber-attack went out of business within six months. Scammers can use the information gleaned during these attacks to file fraudulent business returns, receive business credits, and more. Further, even if the business survives, such breaches can damage the trust their customers have placed in their services. On a personal level, tax scams racked up about $1.3 billion in 2019, even though the FBI Internet Crime Complaint Center estimated only 15% of crimes were reported. Tax scammers will often pose as IRS employees or members of fake charities. They are looking to obtain personal information which can be used to commit fraud or gain access to your personal finances. 
 
There are two states during which a tax record must be protected. The first state is physical and the second state is digital. The IRS recommends holding on to your tax returns for a minimum of three years (along with other documents, like W2s, 1099s, and deduction-related receipts). This three-year period begins when you file the return, when your taxes were due, or when you paid your taxes, depending on whichever date is latest. You should keep your records twice as long if you intentionally underreport your income or report a capital loss from securities. These documents might be requested as part of an audit or to reassess a refund. Therefore, it’s important to keep your records instead of just tossing them as soon as tax season is over. But how do you keep these documents safe for years on end?
 
If your tax records are physical, then the most important consideration is where you’ll keep them. The IRS recommends keeping your paper records under lock and key, like a desk drawer in your home office. You should, of course, never toss paper returns (or supporting documents) into the trash intact. You should always shred old financial or health records, especially if they contain sensitive information (such as your income, health status, SSN, etc.). 
 
If your tax records are digital, then there are several considerations you’ll need to take into account. First, what will you do if your hard drive crashes? Short of any external factor, all electronics are subject to fail at some point. For this reason, it’s important to keep your records backed up on an external hard drive, which you can store in the same manner as important paper documents. You might also invest in encryption software, especially if these records are for your business. If you’re getting rid of an old computer, on which you’ve stored your records at some point, be sure to wipe the entire hard drive. Simply deleting these files will not ensure they’re completely gone. You should wipe portable devices, too, such as phones and tablets.
 
Other Security Measures
 
Certain viruses specifically target sensitive information. As you’re exploring the internet, you might not even be aware you’ve clicked on a virus. For this reason, it’s important to invest in anti-virus software, as well as firewalls. Anti-virus software will alert you to the presence of a virus, while firewalls can act as extra protection between cyber-threats and your information. Concerning phishing scams, you’ll need to learn to recognize suspicious correspondence. The IRS does not “initiate contact with taxpayers by email, text message or social media channels to request personal or financial information.” No matter how professional an e-mail or text message sounds, if this is the first time you’re hearing about an “issue” with your taxes, it probably isn’t the IRS. Further, the IRS will only direct you to share personal information through a secure channel, such as their website or a portal run by an approved affiliate. 
 
How do you spot fake charities reaching out for “donations”? If you receive a phone call requesting a donation, do not feel pressured to give right then and there. Instead, do research on the charity in question. A cursory search on Google can reveal when the charity was founded, what work the charity has done, and whether others have been scammed by the “charity” in the past. When you’re using your electronics in public, try to use a personal hotspot or a WiFi network protected by a strong password, as hackers can use WiFi to obtain your personal information. 
 
OIC Mills are what the IRS calls promoters who claim their services are needed to “resolve tax debt through the Offer in Compromise (OIC) program.” These promoters will often claim there is a dwindling amount of time during which debtors can settle their debts for “pennies-on-dollar.” This is a scheme and you should hand up the phone immediately. If someone calls saying they are able to “cancel” or “suspend” your social security number, this is also a scam and you should ignore them. 
 
Plan for the Worst
 
What if you follow these Security 101 tips and are still the victim of identity theft? Or, your tax records were stolen? Well, then you should have a contingency plan. In the event your personal information is compromised and you believe you’ve been the victim of a scam, you should contact the requisite agencies. This might include your bank (to cancel your cards and alert them to suspicious activity), the IRS (to discover if anything has been filed in your or your business’s name), and whoever else might need to be alerted. Having a plan already in place allows you to respond quickly to any incident. As well, you can rest easy knowing that–should the worst happen–you’re prepared. 
 
 
We hope this has been helpful! Preparation is always better than dealing with the fallout. That’s why, if you haven’t already, take today to implement a few of these tips. Keeping your personal and business records protected will mean you’re less likely to become the victim of an attack, hack, or scam. We’re almost to tax season and it’s more important than ever to keep your information safe! At Hoods, we offer bookkeeping, accounting, and business consulting services. As well, we offer tax preparation, payroll, and QuickBooks training! If you have any questions or are interested in a consultation, do not hesitate to reach out. We do offer virtual consultations over Zoom, as part of our effort to accommodate everyone in these trying times. We look forward to hearing from you! Thank you for taking the time to read and we hope you’ll return for future learning! Until next time!

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