As if you don’t have enough to worry about as an entrepreneur this tax season, there is one more thing you need to be very aware of: identify theft.
If you are a sole proprietor, everything about your business is tied back to you. Your livelihood not only depends on your good work habits, but on safeguarding your information — your clients’ information and your own. And as we slide into the middle of FY2016 tax season, you should also do what you can do to ensure your private information isn’t stolen and used to steal your tax return right out from underneath you.
The first thing to consider, if you haven’t already, is getting an Employee Identification Number (EIN). As a sole proprietor, you’re not legally required to get an EIN. But in addition to protecting your personal assets in the event your business hits a few bumps, having an EIN can also help protect your identity. With an EIN, you will not have to use your social security number for any business-related tax forms or credit or loan applications.
The best part about it is this: it doesn’t cost you anything.
Here are a few other tips to keep in mind:
Watch what you throw away.
The easiest and most common method thieves use to steal someone’s identity is simply going through their garbage. Be very careful about what you throw away. Just because you tie up your garbage bag and have a secure lid on your can or dumpster doesn’t mean you are being as careful as you could be. It wouldn’t hurt to invest in a paper shredder to ensure that any documents with potentially useful information for identity thieves are unusable.
(Here’s a little side tip if you also garden: depending on how much paper you shred and what kind of paper it is you can add shredded paper to compost.)
Watch where you handle financial matters
One of the big draws about being a freelancer or owning your own business is that, depending on what you do, you can literally take your business anywhere. We’ve all seen the gig economy articles with pictures of satisfied looking semi-professionally dressed people sipping a latte in some generic coffee shop while working on a laptop.
And there’s nothing wrong with that. But when it comes to doing your taxes, it’s a good idea to avoid public Wi-Fi hotspots for filing digitally. You should also avoid publicly accessible hotspots at hotels and fast food restaurants, even if it’s a secure spot that requires a password. Your best bet for filing digitally is to file from home or your business office, using a hardline connection or a secured connection where you control access.
Also, if you’re using a tax app on your smart phone that requires you to take a picture of your W-2, be sure to delete the photo after you’ve sent it.
Beware phone and email scams.
The IRS always sends documentation if there is an issue with your tax return. If you haven’t received any documentation, but are receiving phone calls and emails claiming you owe the IRS an excess of back taxes, be extremely cautious. They will sometimes give you fictitious but very real sounding badge or employee numbers. Sometimes they even know the last four digits of your social security number. If you receive a phone call from someone claiming to represent the IRS, immediately hang up and contact the IRS. If you receive an email, you can forward the IRS the email, but if possible, you should not open it as it may be part of a different phishing scam to install malware on your computer.
If you don’t prepare your own taxes, make sure you find someone trustworthy.
If your tax preparer asks you to sign a blank return, run – don’t walk – the other direction.
There are other ways to protect yourself
If you decide that protecting your identity is also a worthwhile financial investment, there are several programs available.
- LegalShield © has a service called IDShield ©. They offer this in addition to other legal services for small businesses.
- AAA also has two identity theft services they provide for members: ProtectMyID Essential and ProtectMyID Deluxe.