Each year, the IRS warns taxpayers about the “Dirty Dozen” tax scams. Some of these cons show up on the list each year, while others are new. Tax scams are most common during tax season or times of crisis. The COVID pandemic created opportunities to try steal money and information from taxpayers.
Taxpayers are reminded to beware of these ongoing swindles that include:
Phishing involves fake emails or websites to obtain personal information. The IRS never initiates contact by email. Do not click on links claiming to be from the IRS. Also be wary of keywords, such as “coronavirus,” “COVID-19,” and “Stimulus.”
Fake charities are a reoccurring concern. Criminals often take advantage of natural disasters and other situations, such as the COVID-19 pandemic, to set up a phony charity, and may even claim to be working with the IRS to help victims.
Threatening impersonator phone calls claim to be collecting money for the IRS. The scammer uses fear and urgency to demand immediate payment. Senior citizens and their caregivers should be especially alert for this type of fraud.
Unscrupulous return preparers, called “ghost” preparers, expose their clients to serious filing mistakes and tax fraud. Ghost preparers do not sign the tax returns they prepare, as required by law. While most tax professionals provide honest service, others should be avoided.
Fake payments with repayment demands involve scammers tricking taxpayers into sending them their refund. The criminal steals or obtains personal data to file a bogus tax return. Once the money is in the bank account, the criminal poses as an IRS employee to request that the money be returned immediately, perhaps in the form of gift cards.
Some recent tax scams that have surfaced include
Offer-in-compromise mills involves misleading tax debt resolution companies exaggerating their ability to settle tax debts for “pennies on the dollar.” The offer requires that taxpayers meet certain legal requirements. Dishonest businesses enroll unqualified candidates to collect hefty fees from taxpayers already deep in debt.
Economic impact payment or refund theft, in which criminals filed false tax returns or bogus information with the IRS to redirect refunds to a wrong address or bank account.
Social media scams may use COVID-19 to trick people. The scammer uses information on social media to send emails pretending to be a family member, friend, or co-worker, which can result in tax-related identity theft.
Ransomware takes advantage of human and technical weaknesses to infect a computer, network, or server. Invasive software (malware) can track keystrokes and other computer activity. An infected computer can allow access to personal and financial data. Or, a ransom request appears in a pop-up window.
To avoid these scams: (1) be aware of potential cons; (2) check with the IRS or your bank if something is suspicious; (3) keep your computer system and passwords secure, and (4) avoid deals that are “too good to be true.”
As technology improves, electric vehicles, also referred to as EVs, are increasing in popularity. The benefits of EV are the result of:
being environmentally friendly with no emissions
nearly silent engine sound
potential tax credits have been available in recent years
lower operating costs and maintenance expenses
smartphone apps to program charging times and to heat or cool the passenger cabin in advance of driving
Common concerns associated with EVs include:
the higher initial cost
short driving ranges for some models and in cold weather and on steep inclines
slow charging time, which are improved with new technology
charging stations may not always be available
loss of cargo space for the battery pack
lower towing capacities than with a conventional vehicle
The two main EV types are battery electric vehicles (BEVs) only running on electricity, and plug-in hybrid electric vehicles (PHEVs) that use electricity for a limited distance before switching to a gas-electric hybrid mode. Some models have an onboard generator to create electricity for greater driving distances.
For additional information on electric cars, go to:
With growing numbers of video streaming services and product box programs, these subscriptions are becoming the newest budget buster. These seemingly small monthly charges add up, lowering a person’s ability to save along with a potential for increased debt. These ongoing financial commitments leave people with a lower percentage of free cash flow, or unencumbered income.
Subscription service spending is often overlooked especially when the payments are on auto pilot. A $4 or $8 monthly fee may not seem like much. However, research indicates that subscription services are an increasing financial burden as most people underestimate the amount. In one study, 84 percent of respondents estimated monthly spending on these services at about $80; the actual amount was over $110. In addition to video steaming services, people sign up for automatic monthly shipments of beer, wine, contact lenses, cosmetics, meal kits, pet food, razors, vitamins, and other products.
For additional information on subscription services, click here.
Have students survey several people to determine the types and amounts of subscription services being used.
Have students create a financial analysis for amounts saved over several years by reducing or eliminating subscription services.
What factors influence a person’s decision to use a subscription service?
Describe suggested actions that a person might take to reduce or eliminate subscription services.
To spend less and save more, consider an “anchoring” system. One example of an anchor is the price of an item to determine if that is an appropriate amount of money to spend for the item.
Anchors prevent shoppers from being overwhelmed by the many choices, prices, and features. You can create your own anchors by:
setting the maximum price you are willing to spend for an item.
considering the value of an item in relation to the number of hours you have to work to pay for it.
comparing the cost in relation to another item. If you buy coffee costing $2.50 a cup and want a sweater costing $50, view the sweater as costing 20 cups of coffee. Your “coffee” anchor will help you determine how valuable the sweater is to you.
When buying a home, you may be encouraged to look at properties outside your price range. Anchoring yourself at a price limit will avoid overspending, make you feel more in control, and encourage wiser financial decisions.
For additional information on financial anchoring, click here.
Have students talk to several people to obtain information about how they determine the price they are willing to pay for an item.
Have students create a video presentation that demonstrates various anchoring methods.
How might anchoring help improve personal financial literacy and money management activities?
Describe anchors people might used to determine the price they would be willing to pay for an item.
Each year, more than 1.5 million taxpayers obtain refund anticipation loans (RALs). This year, the number may be higher as a result of the government shutdown. While, RALs provide faster access to your money, they come with high fees and should only be used as a last resort. These “cash advances” are a potential for scams; before using these loans, take these actions:
Assess the cost. While some national tax chains promote this service as a “free” cash advance, fees may apply for applying for the advance, checking your credit, and transferring the money to you. Costs for your refund advance check range from $29 to $65. If your refund is on a prepaid debit card, there will likely be additional fees.
Beware of loan terms based on timing. Additional charges may occur if your refund is delayed.
Compare other options. Seek less expensive, small-dollar, short-term loans from a community bank or credit union, or a zero-percent credit card. A $35 charge to defer a $350 tax preparation fee for two weeks has an APR of 174 percent.
To avoid late fees for bills, contact your creditors. Utility companies and medical providers may offer no-cost extensions or no-cost payment plans.
Always be sure you are doing business with a reputable tax preparer. Check credentials and references. Avoid tax preparers who charge fees based your refund amount, or who deposit your refund in their bank account. Another fraudulent activity is filing false information to increase the amount of the refund.
For additional information on tax refund advances,click here.
Have students search online for costs for refund anticipation loans.
Have students prepare a video presentation on avoiding refund anticipation loans.
What advice would you give a person planning to obtain a refund anticipation loan?
How might community organizations and government agencies assist people who are considering a refund anticipation loan?
While car ownership has been a cultural milestone in our society, this tradition is diminishing with a trend toward renting or borrowing rather than owning. This situation is partially related to fewer teenagers opting to obtain a driver’s license. Also, fewer young people are buying homes, giving preference to the flexibility of renting.
The owning of “stuff” is shifting toward “decluttering” and choosing instead to rent items as needed. A strong belief that overconsumption is putting our planet at risk is driving the rise of the sharing economy. In addition, there is a growing trust to value exchanging items with “real people” rather than buying from major companies.
In addition to Zipcar, which rents vehicles by the hour, other rental business models include:
Ann Taylor’s Infinite Style service that allows a person, for a $95 monthly fee, to rent up to three garments at a time.
SnapGoods rents cameras, power tools and home appliances, such as blenders.
Frankfurt airport has a service that allows travelers to store winter coats when flying to warmer climates. Other businesses are considering a service to rent cold weather clothing to travelers arriving from tropical areas.
Since about one-third of new vehicles are leased, Cadillac created the “Book By Cadillac” program allowing a person to exchange up to 18 vehicles a year.
The many empty stores in malls create opportunities for “swap meets” and “rental fairs” for various products, using these spaces to also build connections in the local community.
For additional information on renting instead of buying, click here.
Have students locate examples of sharing economy businesses and rental companies in your community and online.
Have students talk to others to obtain ideas for new types of rental businesses.
What do you believe are the benefits and drawbacks of renting instead of owning?
Describe actions that might be taken to determine needs and ideas for rental businesses in a community.
The joy of the holiday season can be overpowered with shopping stress and financial difficulties. To avoid this situation, consider this approach:
In mid-to-late November, create a spreadsheet to manage your holiday spending. Categories might include gifts for family and friends, donations to charity, holiday meals along with other items such as shipping, wrapping paper, decorations, parties, and travel.
Enter realistic amounts that you are able to spend for the various people on your gift list and for the other categories.
Monitor your actual spending, attempting to stay within your budget.
Based on this year’s experiences, adjust categories and amounts for the 2019 holiday season.
The spreadsheet might include columns for name/item, budgeted amount, actual amount, difference, and notes for future reference. Starting earlier in the year, consider setting aside holiday money to avoid taking away funds from your normal budget. You might also consider using credit card and other reward points for gifts.
For additional information on a holiday spending spreadsheet, click here.
Have students create a spreadsheet that might be used to monitor holiday spending.
Have students talk to others to obtain ideas for not overspending during the holiday season.
How would you make use of a spreadsheet for holiday spending?
Describe actions that might be taken to monitor and control holiday spending.
It’s possible to add $500 or $1,000 to your savings with a simple action. Clark.com suggests using store receipts to save for the future. Many retailers display a “You Saved” amount on a receipt for items on sale and store discounts. By putting this amount in a savings account you can avoid spending the “saved” money on other items.
Collecting receipts in an envelope or box, or scanning them to an app, can also help analyze buying habits to make wiser purchases in the future and not make as many trips to the store. This action can result in an extra amount each month added to your savings. This money can be added to your emergency fund or retirement account.
For additional information on the receipt savings trick, click here.
Have students locate examples of receipts that show “amount saved.”
Have students talk to others to obtain ideas for methods for building a person’s savings account.
What do you believe are the benefits and drawbacks of using this system?
Describe other actions that might be taken to motivate you and others to build your savings?
What are some signs that a romance scam could be taking place?
a new love living far away requests money or use of your credit card number
being asked to sign a document giving a new romantic interest control of your finances
a new sweetheart wants you to open a joint bank account with them
While romance scammers usually focus on single, older people, anyone seeking a new relationship is a possible target. These scams can happen in person, but more often through social media, dating websites, smartphone apps. These scams happen when a new love pretends to be interested in you as a way to get your money. In fact, they may not even be who they say they are.
Beware of Cupid’s arrow striking your wallet instead of your heart! To protect you, friends, and family from romance and other scams, consider these actions:
Avoid giving a new friend access to credit cards, bank accounts, or other financial assets.
Report crimes or financial exploitation to local law enforcement agencies or to Adult Protective Services (APS); information available at gov.
Contact your state attorney general and the Federal Trade Commission to report cases of financial abuse.
For additional information on romance scams, click here.
Have students create and present possible scam situations to create awareness among various potential victims.
Have students create a visual presentation (using computer software or a poster) to communicate actions to avoid scams.
What are common warning signs that may indicate that a possible scam is taking place?
Describe actions that might be taken to avoid various scams and frauds.
The Internet has made our lives easier in so many ways. However, you need to know how you can protect your privacy and avoid fraud. Remember, not only can people be defrauded when using the Internet for investing; the fraudsters use information online to send bogus materials, solicit or phish.
Here’s what you can do to protect yourself when using social media:
Privacy Settings: Always check the default privacy settings when opening an account on a social media website.
Biographical Information: Consider customizing your privacy settings to minimize the amount of biographical information others can view on the website.
Account Information: Never give account information, Social Security numbers, bank information or other sensitive financial information on a social media website.
Friends/Contacts: Decide whether it is appropriate to accept a “friend” or other membership request from a financial service provider, such as a financial adviser or broker-dealer.
Site Features: Familiarize yourself with the functionality of the social media website before broadcasting messages on the site. Who will be able to see your messages — only specified recipients, or all users?