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Steps to Protect and Use Your Tax Refund Wisely

Steps to Protect and Use Your Tax Refund Wisely

Steps to Protect and Use Your Tax Refund Wisely 2560 950 Waterford Bank NA

Nicole Saylor, Clarkston Branch Customer Service Manager & Officer

Tax season is here – and you may already be thinking through the best ways to utilize your tax refund.

But, those extra funds shouldn’t be the only thing consumers’ are ready for this time of year. Thieves often try to utilize tax time to steal that extra cash – and victims may be in the dark until they go to file.

So, how can you protect yourself from tax identity theft and IRS imposters? Here are our top tips for keeping your money safe – and investing it wisely.

What Tax Refund Scams Are Out There?

The Federal Trade Commission (FTC) defines tax identity theft as when “someone uses your Social Security number to steal your tax refund or for work.” These thieves generally file early in the year, leaving victims unaware until they go to file a return and learn one has already been filed in their name.

Consumers should also be aware of IRS imposters. These scammers try to trick you into thinking they’re calling from a government agency, often claiming you owe taxes and demand you pay up immediately with a prepaid debit card or some kind of gift card. They may threaten that you’ll be arrested if you don’t comply. But, this is all part of their scam.

An imposter hides behind a mask and computer to trick people out of their tax refund.

Tax identity thieves and IRS imposters are ready for tax season. If you get a call or email from the “IRS” demanding money – hang up! The IRS will always contact you by mail first.

IRS imposters may also utilize text messages to try and get you to click on a suspicious link. This time, they may advertise a “tax rebate” or some other benefit. These messages may look legitimate, but no matter what they say, it is a scam.

The IRS will never call, e-mail, or text you to contact you for the first time. If the IRS needs information, they will contact you by mail. Communication from the agency always starts with a letter. If you’d like to confirm, you can always contact the IRS directly at 800-829-1040.

Protect Yourself Against Tax and ID Fraud

As you begin to file your taxes, there are several steps you can take to avoid falling victim to tax ID fraud and other tax-related scams, including:

  • File early. File your tax return as soon as you’re able giving criminals less time to use your information to file a false return.
  • File on a protected network. If you’re using an online service to file your return, be sure you’re connected to a password-protected personal network. Avoid using public networks like a Wi-Fi hot spot at a coffee shop.
  • Find a tax preparer you trust. If you’re planning to hire someone to do your taxes, get recommendations and research a tax preparer thoroughly before handing over all of your financial information.
  • Keep an eye out for missing mail. Fraudsters look for W-2s, tax refunds or other mail containing your financial information. If you don’t receive your W-2s, and your employer indicates they’ve been mailed, or it looks like it has been previously opened upon delivery, contact the IRS immediately.

If you believe you’re a victim of tax identity theft or if the IRS denies your tax return because one has previously been filed under your name, alert the IRS Identity Protection Specialized Unit at 1-800-908-4490.

In addition, make sure to respond immediately to any IRS notice and complete IRS Form 14039, Identity Theft Affidavit.

Next, contact the three major credit bureaus to place a fraud alert on your credit records:

  • Equifax, www.Equifax.com, 1-800-525-6285
  • Experian, www.Experian.com, 1-888-397-3742
  • TransUnion, www.TransUnion.com, 1-800-680-7289

Using Your Tax Refund Wisely

The safest way to receive your refund is a direct deposit into your bank account. But, once you receive your refund safely, how do you decide the best way to use it?

A couple uses their tax refund to paint and tile their kitchen.

Splurging on those designer shoes or a vacation is tempting, but as a homeowner, putting your tax refund into your house is a wiser option. Even small home improvements can up your home value and quality of life.

Here are four ways you can make your refund count:

  • Save for emergencies. Open or add to a high-yield savings account that serves as an “emergency fund.” Ideally, it should hold about three-to-six months of living expenses in case of sudden financial hardships like losing your job or having to replace your car.
  • Pay off debt. Pay down existing balances either by chipping away at loans with the highest interest rates or eliminating smaller debt first.
  • Put it toward a down payment. The biggest challenge that most first-time home buyers face is coming up with enough money for a down payment. If you intend to buy a new home, putting your tax refund toward the down payment is a smart move.
  • Invest in your current home. Use your refund to invest in home improvements that will pay you back in the long run by increasing the value of your home. This can include small, cost-effective upgrades like energy-efficient appliances that will pay off in both the short and long term. If you have more substantial renovations in mind, your bank can help with a home equity line of credit.

As a reminder, Tax Day for 2023 is Tuesday, April 18. If you believe you will need an extension, learn how to apply digitally on the IRS website.

About the Author

Clarkston Branch Manager, Nicole Saylor

Nicole Saylor is the Branch Customer Service Manager & Officer at Waterford Bank, N.A. in Clarkston, Michigan. As a mother of three, she is a master in educating and problem solving, skills she brings to the job daily. If you’d like to connect with Nicole to discuss personal banking services or another aspect of your financial journey, please contact us here.  

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