What You Need to Know About TurboTax Fraud

What You Need to Know About TurboTax Fraud

TurboTax recently shut off the ability for people to file state tax returns using their software. They discovered crooks were using Social Security numbers to file false state tax returns and grab refunds.

TurboTax has since reinstated their service and advised people to file as early as they can to avoid fraudulent filing.

TurboTax's advice is the exact opposite of the advice I've been giving you.

TurboTax said that if the crooks file before you do, you'll still get your refund, but it could be delayed for a year or more as state governments force you to prove an imposter stole your identity and used it to file.

My argument for waiting is to avoid having to re-file because of a 1099 mistake. If you're an investor in mutual funds or ETFs, fund companies are required to send you a 1099 by the end of January. But if they discover a mistake and send you a revised 1099, you'll have to file an amended return.

It's easy to figure this out. You simply have to figure out which of the two strategies, waiting or going ahead, is worse. If you file fast, and later get an amended 1099, you're going to have to re-file and amend it. What is that going to cost you in tax prep fees and hassle factor?

If you wait and file in April, what is the risk that a crook got ahead of you and grabbed your refund?

Well,

  1. What's the likelihood the fraudulent filing will really happen?
  2. How much is your refund?

If your refund is very small, so what? If your refund is really big, well then you might want to choose to file early. You have to choose which of the two is less of the evils.

And I'll say this as a final comment: "You're not supposed to be getting a refund!" A refund means you overpaid the IRS last year -- you gave the government more money than you actually owed in taxes.

In 2013 the average federal refund totaled $3,211, according to the IRS. The average household income nets $35,000 a year after paying 32% in federal, state and payroll taxes. That means American households are lending the IRS almost 10% of their annual income during the year for no good reason!

Talk to a tax advisor or go to your HR at work to make sure you're claiming all the exemptions you can. You can take the money you no longer send to the IRS and save it instead.

Then, you don't have to worry about a crook stealing your refund, because there won't be one.

For more on what's changed in the 2015 tax season, including new retirement plan contribution limits, click here.