One problem that many business owners aren't aware of is tax identity theft. It can affect individuals and business entities alike.
Tax identity theft for businesses is a lot like identity theft when it comes to people, but instead involves a business' employer identification number, or other account information, being used for unauthorized purposes.
It can end up ruining your credit, disrupting your business, and costing a lot of time and money to clear up the mess.
Business Identity Theft
Once a company's tax information is stolen, it can be used for many things. Sometimes, scammers will create fraudulent tax returns and claim false refunds. Other times, they use the identification to create tax shelters or other ways to hide their income.
Perhaps more commonly, criminals will use a business' identity to open credit card accounts and buy expensive merchandise like electronics, which they can then sell for cash to make a quick profit, according to the Colorado Secretary of State's office.
Protect Your Business' Identity During Tax Time
Businesses keep a lot of records and have many credit accounts, so it's easy to leave yourself vulnerable for identity theft. Especially during tax time, when you're filing and distributing all your tax forms, you'll need to know how to keep your information safe.
Here are a few tips:
- Shred, shred, shred! Once a file is closed and done with, and all taxes have been accounted for, it's important to shred the documents well. There are many outside companies that shred documents properly and dispose of them, or you can get your own heavy-duty shredder. Just make sure it really gets the job done.
- Put policies and procedures in place. When it comes to your tax ID number and other sensitive business information like your customers' personal data, make sure that you establish policies with your employees about how to handle such information. You may want to document things like chain of custody. Also, be careful about who gets access to sensitive data.
- Don't issue letters with your tax ID number. Many businesses, especially tax-exempt entities, place their tax ID number on every piece of correspondence that goes out. But there really isn't much use for it on your stationery, and when someone really does need it, they will likely request it. Don't throw it out there if you don't need to.
- Don't respond to emails or texts from the Internal Revenue Service. The IRS does not correspond via email or text message. If you're contacted by the IRS via email, it's probably not the IRS.
- Be careful on the Internet. There are fake IRS websites out there. If a website doesn't begin with www.irs.gov, it's not the IRS' website. And don't be fooled by phishing emails that ask you to enter your tax ID or account numbers.
If you need to report tax identity theft, go to the IRS' Identity Theft Protection Page. The IRS also has a hotline for identity protection: (800) 908-4490.
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