At Tax Time, Tax Man Isn't The Only Worry

It's income tax season once again - which means millions of people will be using tax software like TurboTax or TaxCut and taking advantage of the numerous online filing sites like TaxActOnline.com or Turbotax.com.

In fact, our friends at the IRS are encouraging us to use PCs to prepare our taxes and again this year are offering the "freefile" program (click on "freefile" at IRS.gov) that, according the IRS site," allows taxpayers with an Adjusted Gross Income (AGI) of $52,000 or less in 2006 to e-file their federal tax returns for free." These sites will try to up sell you on other services and may charge you to file your state returns.

I must admit that for a variety of reasons, I don't prepare my own return. Mine are a bit complicated and my brother, who heads up a CPA firm, gives me a family discount. But for the past couple of years, I've used Turbotax.com to prepare my college-age kids' returns. Theirs aren't terribly complex but they do have to account for earnings from self-employment and part-time jobs as well as interest and dividends.

For millions of other taxpayers, these services offer an inexpensive and simple way to get through this hated but necessary annual ritual. One thing I love about being a repeat customer at Turbotax.com is that it automatically brings up data from the previous year's return, cutting down on a lot of data input. It also allows you to import data from online brokerage firms, which cuts down on an enormous amount of typing while greatly reducing the possibility of a mistake.

One advantage of using an online service to prepare your taxes is that you can work at it at home and pick up where you left off from another computer at work, a friend's house or a library. But, before you even think about that, consider a warning from security expert Steve Gibson, president of Gibson Research.

"One thing I can't imagine would be using a public PC of some sort to do this kind of work," says Gibson. You absolutely would never want to go to a public library and assume that it's safe to do online tax preparation under any circumstances because those are high vulnerability targets.

Gibson, along with other security experts, worries about "keystroke loggers" - malicious software that can be surreptitiously installed on a PC to record everything the user types, including of course user names, passwords and, in the case of tax preparation, Social Security numbers. This type of malicious program can record anything you do at your PC, whether online or off, so it wouldn't matter whether you were using an online tax service or a PC-based program.

David Perry of Trend Micro warns against using a wireless network or even a wired PC that is connected to a wireless router. "If you have a wireless router," he explains, "you are basically a radio station and there could be someone parked in their car down the block looking at your network, even though you're not using wireless at the time."

Even if you aren't among the wireless, there are other ways to stumble.

"You need to pay close attention to computer security when you're doing your taxes online," says Brian Trombley, product manager at security software maker McAfee, adding that people can try to steal tax information from your PC even if you don't go online to do your return.

Trombley recommends that you have anti-virus, anti-spyware and firewall software - and keep it up-to-date – programs such as his company's Internet Security Suite which, like competing products from Symantec, Zone Labs and other companies protects against both malicious software and would-be hackers.

Such security programs typically cost about $50 a year on a subscription basis. Microsoft also now offers a fee-based protection service called Windows Live OneCare.

Gibson says that such security programs are fine, but far from foolproof.

"These products are a good measure of protection but it's always the case that these companies are coming up behind the problem. It's when people are being attacked or abused by some new piece of malware that the companies identify the malware and add awareness of it to their security products," says Gibson. "There's always a window of vulnerability and some set of users are exposed to this malicious software before the security product is advanced and the so-called signature patterns are updated."

Gibson suggests using either one of these commercial suites of protection programs or a free anti-spyware program such as the free version of Adware or Spybot Search and Destroy. You'll find links to these and other security programs at http://pcanswer.com/security.

He also recommends that you practice safe computing by avoiding going to or downloading programs from sites that may not be secure.

Parents who share a PC with kids get a second warning: be especially careful if you think your children may be downloading programs.

"It's a function of how much you have at risk and how your computer is used. Any out-of-control use – such as kids using the PC to download software – exposes it to potential problems that are on the Internet and can contaminate it."

Other risk factors: "If your computer has had problems in the past with malware, then something is going on that should raise your level of concern about your computer's vulnerability." If that applies to you, then you should definitely scan your PC for malware before using it for tax preparation.

Final note: in addition to the above precautions, it's a good idea to keep a close watch on your credit cards and bank statements and to check your credit reports every few months.