Five Tax Scams Every Small Business Owner Needs to Know
Planning to build a small business is always an exciting prospect, especially if you have a unique product in your hands. But we all know that establishing a business is not all smooth sailing.
As a small business owner, it’s important to be wary of tax scams that could take away your business’s hard-earned profit. In 2019, the FBI Internet Crime Complaint Center received near 300,000 tax scam complaints, which totals to a staggering $1.3 billion in loss.
For this reason, small business owners of all kinds should be aware of how tax scams and con artists work, as they can put your business’ confidential information at risk. These scammers ramp up their scheming tricks against small businesses during tax season, when business owners like you double down on filing your tax returns. However, your business may be at risk from these tax scams throughout the year.
Common tax scams targeting small businesses
If you’re about to start a small business, you should know about the tax rules and processes that could expose you to tax scams and identity theft. For instance, recently, the Internal Revenue Service (IRS) implemented a new tax rule that will require you to report your income if you receive an annual profit of at least $600 through digital payment platforms such as PayPal or Square, or other third-party settlement providers.
Along with this new tax rule, businesses of all sizes are also asked to fill out a variety of tax filing forms each year that include tax information and other personal data such as Social Security number (SSN) or tax ID—a process that con artists and cybercriminals often take advantage of.
With that said, you should be aware of these common tax scams that could target your small business.
1. Phishing emails
One negative ripple effect of the IRS’ new tax rule is a possible drastic increase in phishing emails not just for individual taxpayers, but also for freelancers and small business owners. These phishing emails may ask you to fill out a form that requires your confidential data, or may issue a fraudulent warning saying that your digital payment account is currently on hold. Before you do anything with any emails of this kind, you should first check if they came from the verified email address of your digital payment platform.
Email addresses that have phishing intentions are often easy to detect. They are usually composed of random or repeated letters and numbers that look questionable from the get-go. If you encounter such emails that ask for tax information, report them to the IRS immediately.
2. Scam phone calls
The IRS also warns small business owners of fraudulent phone calls that could come from con artists that pose as fake IRS agents. These fake agents would demand you to pay a certain amount of a tax bill, when you never received a bill from the IRS in the first place.
When you hesitate on agreeing to their terms, they may threaten you with all kinds of scenarios: police arrest, revocation of your business license, and even deportation. When you receive a call from supposed IRS agents who are aggressive and intimidating, there’s a high likelihood that they are con artists.
3. Fake charities
One way to enjoy tax savings is to contribute or donate to charity, something that taxpayers and business owners often do. As a small business owner, it is always a good strategy to support a cause because you are putting up a good image for your business, while also benefiting from tax relief at the same time. However, you should be wary of scam artists who put up fake charities—often in the form of donations for victims of natural disasters—and pry money or personal information from you.
If you’re planning to make a donation to reduce your tax liability, you can check the Tax Exempt Organization Search Tool at the official website of the IRS to know if an organization is eligible to receive tax-deductible charitable contributions.
4. Fake tax refunds
The number of tax-refund fraud cases soar drastically during tax season, which is why you should be extra careful of scammers. Experienced scammers may have years of practice in drafting fake tax refunds. Some criminals impersonate IRS agents and say that a tax refund was wrongly deposited in your account, which they would then ask you to return and forward the money to their fraudulent agency.
5. Fake emails to update your IRS files
If you are a business owner, the IRS will ask you to update your files and other important information that you have with them. When you’re starting a small business, the IRS will provide you a list of the documents and information that you need to comply with, and you have to update these from time to time.
However, you should be wary of scammers and con artists posing as IRS agents who will send you emails saying that they need your business’s up-to-date information. Even though the email contains the official logo of the IRS, it does not mean that it indeed came from them. You should always remember that the IRS will never start a conversation with you through email—they typically initiate contact with you through the regular mail delivered by the U.S. Postal Service.
Protect your small business from tax scams
Don’t underestimate the fact that these tax scams could happen to you. Being aware and alert, along with taking heed of these tips, could safeguard your small business from even the most experienced con artists out there.
Always verify email addresses and websites
With more people opting for cashless transactions, even small businesses like yours need to register an account on digital payment platforms such as PayPal, Venmo, Stripe, Square, Google Pay, or Wise (formerly TransferWise). With more businesses going digital nowadays, scam artists are also sending out more phishing emails to business owners, asking for confidential information and even money. One way to combat phishing emails is to verify the email address, official website, and all contact information of your trusted digital payment platform. Checking this vital information will only take a minute or two, and it will help you quickly recognize a phishing email.
Moreover, if you have registered to an identity theft protection provider such as LifeLock, it will immediately check if a website is fraudulent. It will send you an alert saying that you should avoid the website, which could save your personal data from being stolen.
Never click anything on a phishing email
Even though you did not respond to a phishing email, it doesn’t mean that you and your business are safe from the schemes of these con artists and cybercriminals. Be careful not to click anything on a phishing email, especially links that could lead you to fake websites. There is always a possibility that these links carry malware, a security risk that could come in the form of a virus, worm, Trojan horse, ransomware, or adware. A malware will infect your computer or device, which would grant scammers unauthorized access to your data, or even use a keylogger to record your keystrokes and pry your login credentials from the online platforms that you use.
Inform your employees of these potential tax scams
If you already have a few people working for you, it is advisable that you also educate them on these tax scam scenarios and inform them on what to do when they encounter con artists. Moreover, only provide access to your confidential information and financial files to your most trusted employees. It’s better to be on the safe side, especially when dealing with the financial side of your business.
Report suspicious activities to the IRS
As soon as you receive a suspicious phone call or a questionable email, immediately report it to the IRS. This allows them to better protect you and other tax payers from similar scams in the future. Remember that the IRS doesn’t request personal or financial information via email, text messages, or social media platforms. So if a fake IRS agent asks for your personal information through an one of these, you should immediately report the sender to the IRS.
Investing in an identity protection solution
You may only be spending a few dollars a week, but investing in identity protection could help you save thousands of dollars and safeguard your business’s profits, private information, and repuation. If you’re planning to partner with an identity protection provider but you’re also on a tight budget, tap into LifeLock, which offers up to 25% off on all products during your first year of membership with them.
LifeLock specializes in protecting your business from scammers looking to steal your valuable private data, as well as that of your small business. LifeLock’s services cover credit monitoring, alerts on suspicious activities regarding your identity and Social Security number, and security for all your personal devices—just what you need to safeguard your small business.