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Identity thieves are dangerous characters that can ruin your personal and business life. We often give them the tools to do us harm. Most of the time, when identity theft occurs, it’s through social engineering, not data breaches like 2017’s Equifax catastrophe. Thieves go directly to individuals and using scams like phishing, get them to provide their personal information willingly.
One of America’s oldest and most respected publications, The Atlantic, got used in an identity theft scam involving independent writers. The Atlantic explained the scam and its purpose when it warned writers it was happening. “The aim of the scam is to obtain personal information such as social security numbers, addresses, and bank account information from the intended victims.”
At least 50 people fell for this scam, giving up their social security number and other identifying information. Their stolen identity might get used for a variety of theft types.
The Atlantic isn’t the only place where this scam is happening. Identity thieves snare individuals into parting with their personal information using other publications and business types.
Independent Contractors Easily Give Up Their Goods
This kind of identity theft is simple because many writers and other self-employed people operate their businesses under their names. They regularly provide clients with their social security numbers, addresses and even personal bank account information to get paid.
But, scammers know they’re accustomed to handing over that and other personal identity information for consulting work. One way they may figure out who those contractors are is by going to their websites or LinkedIn profiles and seeing if they’re operating under an entity. If not, they assume they’re giving away their personal information in exchange for a check.
Protecting Your Identity in Business Transactions
There are a few methods you can use for getting around giving more than your name in business transactions you’re a consultant, and I’ve used them.
As long as you don’t try using any of these strategies to cover up shady activities. They’re all legal if you implement them right. They also can be effective for protecting yourself from identity thieves and others who’ll use that information to harm you.
You should check with your lawyer or accountant before using what I’m sharing here in your business to make sure these tactics work for you, though. These strategies work best when you customize them for your business.
Taking the Basic Approach
You can start with some fundamentals of protecting your identity during business transactions. These strategies can help you hide your identity from garden variety identity thieves because they’re looking for easy targets.
These are the quickest and least expensive tactics if your primary goal is keeping your personal and business activities separate.
Register a DBA or Trade Name
Also called a “fictitious name,” or “assumed name”, a DBA (“doing business as”) is a “trade name” or business name that sole proprietors can use in place of own. Registering on is not the same as setting up a legal entity like an LLC or corporation (which also can have trade names; see below).
You’ll operate as “My Real Name d/b/a My Business Name.” One benefit of DBA is you can stop using them and start using another easily.
However, when it’s used for your sole proprietorship, it doesn’t offer any protection other than making personal identity theft somewhat harder. There’s no legal separation between you and your business like with an LLC or corporation. It’s just another name you’re using in place of your own to do business.
While you’re entirely responsible for all debts and other legal obligations of your DBA, all revenue passes through to you. If you’ll “do business as” any name other than yours or the name of an entity you’ve registered, most jurisdictions require trade name registration.
Pick something professional and register that with your state, county or city. In some places, you’ll register your trade name with a court. Check carefully with your secretary of state’s office to see what the requirements are so you can meet them. You can register as many as you want but you should do it before you use it to conduct business.
Get a Business License with Your Trade Name
Since you’ll need one to prove you’re a “real” business, get a business license in your trade name, too. That’s usually a separate process from registering your trade name, and most jurisdictions require business licenses for wherever you operate a business. That’s done with your local government if you’re a sole proprietor.
If you’ll register as an entity (explained below), registering that entity with the state is the same as registering your business name. But, if it uses trade names, you should register those to protect your business. You still have to get business licenses for that entity.
Keep in mind that, in some places, if you’re a sole proprietor and run your business from home, you may have to put your home address on your trade name registration or business license. Those jurisdictions also might put that information in a public database online for anyone to look up.
Consider asking a business lawyer or accountant about how to register your trade name or get your business license correctly in your state or locality. The process and requirements can be different everywhere. The cost depends on where you live and how your jurisdiction requires you to register DBAs and obtain business licenses.
Establish a Business Mailing Address and Phone Number
It’s important to hide your home address and phone number, too. To protect your identity, you don’t want to use the phone number or home address tied to your legal name and social security number for your business. Use Google Voice or a paid app like Line 2 or Sideline for your business phone numbers instead.
Then, use that business phone number on the separate business address you establish from your home address. You can rent a mailbox at a Commercial Mail Receiving Agent (CMRA), which is considered a “private mailbox.” Or, you can get local P.O. box at USPS.
There are a few options for your private mailbox. One is a virtual private mailbox account online from a site like Anytime Mailbox, which offers local mailing addresses in many cities across the U.S. You also can rent a private mailbox in person at a local UPS Store or similar business in your area.
If your budget permits, renting a mailbox at a virtual office location also is an option, especially if your favorite co-working space offers the service.
You’ll pay monthly rental fees and service fees to get mail forwarded to your home address if you don’t pick it up yourself. (USPS doesn’t offer mail forwarding with a P.O. box. After you end your service, fill out a forwarding form for your new address. Similarly, you can’t do mail forwarding using a postal form when you close your CRMA mailbox.)
In all cases, you’ll have to provide your real name, two types of identification, one of them a government ID, as well as your actual home address on an application. Private mailboxes and the Postal Service have different applications. For a private mailbox, you also must complete a PS Form 1593 that the US Postal Service requires.
Research the process before you open your business mailbox account so you know what to expect and what costs are.
Get an Employer Identification Number
Using your trade name, business mailing address and business phone number, apply for a federal employer identification number or EIN from the IRS. You will need to give your true name and social security number when you do this but typically, not your home address. Usually, you can do it online where it’s intuitive and only takes a few minutes. You’ll download the “CP575” or letter verifying your new EIN.
Your purpose for an EIN to help protect your identity, and having one offers an alternative to using your social security number for contract work. It’s what credible consultants do, and that’s how you should see yourself—as a real consultant.
Again, check with an accountant or experienced tax advisor for any tax implications because there are different EIN types for different purposes. You want to select the right one for your needs and make sure you establish yours in a way that most protects your business and personal identity.
Since and EIN is like your business’ social security number, you should use it for all business transactions where you can use your trade name, business address and EIN. That includes invoices and any contracts you sign.
Then, when a scammer demands your social security number for an opportunity they’re offering, you’ll say, “I only operate under my trade name and use my EIN and business address to get paid contract assignments.”
How they respond should give you clues to their motives for requesting that information. If they insist you need to use your social security number and personal address for their opportunity, it’s probably a scam, and you’ve just dodged a bullet.
Open a Business Bank Account
You already should be keeping your business and personal expenses separate for a whole host of reasons. But, protecting your personal bank accounts from business scammers is one, too. So, having your trade name, EIN, business phone number and business address on your business bank account can help.
However, banks require you to provide the same personal identity information to open a business account as you would when you open a personal account. As of May 18, 2018, new federal regulations require banks and credit unions to identify the “beneficial owners” of enterprises opening business bank accounts.
That means if you own more than 25% of a business or exercise control over its bank accounts, you’re a beneficial owner. (For some banks, the percentage of beneficial ownership is 10%.) You’ll fill out a form and provide verifiable documentation of your identity.
You’ll show at least your driver’s license or unexpired government identification showing your current home address to open a business banking account. Even though the bank account gets the business’ trade name and EIN, they’ll ask for your social security number, too.
Research your options carefully because banks can have widely different policies for opening business accounts since they can set unique policies. Contact your bank beforehand to know what you’ll need to open your business account with them.
Even if you have to give your social security number and home address to the bank to open a business account (or don’t mind doing that), you won’t provide clients your regular personal account information to get paid. Use your business bank account for all banking activities related to your business.
Talk with your qualified tax professional or lawyer about the tax and legal implications of opening business bank accounts.
Next Level Identity Theft Protection
If you want to implement a higher level of personal identity theft protection, there’s more you can do to protect yourself and personal assets. However, this more sophisticated strategy can require additional legal and financial guidance, supplemental paperwork and extra management. Not complying with these increased demands could cost you essential protection. So, choose implement this one with care.
But next level protection is what many business owners who are independent contractors put in place. They also can get the multiple advantages of operating this way as long as they understand the disadvantages.
Launching a Formal Entity
When you’re incorporated or have an LLC, all your business transactions get done through that entity and under its EIN. Entities vastly differ in their level of protection beyond choosing a name, appointing a registered agent, and registering it with the secretary of state. So, LLCs and corporations, the two most common entities registered by small enterprises, aren’t entirely alike.
LLC’s are usually easier than corporations to set up and run than corporations (“S” or “C”) but each protects you differently in business operations. Both entity types can be inexpensive to register in most states. You can form one of these in any state you want as long as you have a registered agent there but it’s essential to choose the right state for your needs.
Keep in mind different states require different amounts of personal information to set up corporations or LLCs. Some even want social security numbers and home addresses of each owner or officer.
Because you’re trying to protect your personal identity from fraud, you might want to avoid those states, even if it’s where you live. Instead, consider forming your entity in a state that doesn’t require so much personal information. If you do register in a “foreign” state, you’ll have other requirements for operating your entity in your state or “domestically.”
Once you establish your entity, remember to use the business address and business phone number strategy above with your new business. You’ll get an EIN under the entity’s name, too. Make sure you know how to choose the right EIN type for your new business.
But, whatever your profession, know the best entity to form for your business type or state and that’s also where an attorney can help. There are tax and legal implications for all of them.
Use Business Bank Accounts with Registered Entities
You’ll have to provide personal identifying information to open business bank accounts under the EIN of your registered entity. Banks won’t let you get past that process but, it’s possible to find a business bank whose rules are less onerous.
But, using your business accounts only under an entity’s name and EIN helps protect you from personal identity theft. By not conducting business using personal bank accounts opened under your social security number, you’re protecting yourself and your business.
That tactics make it harder for a determined fraudster—or someone else looking for your business assets—to find your business banking accounts using your social security number.
Moreover, if there’s a significant data breach exposing your social security number, thieves could find any personal accounts you’re using to conduct business. But this doesn’t mean you should use these accounts to hide assets, either.
You’ll face serious legal problems if you try hiding assets using business bank accounts. Don’t use any strategy here to try concealing assets during a divorce, bankruptcy, personal injury litigation against you, IRS actions, child support suits and other legal situations.
Also, avoid using your business accounts as a personal piggy bank to pay personal expenses.
Get Help Deciding What Strategies to Use
None of these tactics is foolproof by themselves. But, using a combination of them correctly and legally can be the best strategy for protecting your personal identity while operating and growing your business.
Don’t go making this decision alone. Make sure you talk to industry savvy accounting, tax, and legal advisors. It’s the best money and time you’ll spend to protect your identity while protecting your business, too.
Originally appeared on Thrive Wealth Communications. Revised May 16, 2018.
(c) 2017-2018. Dahna M. Chandler for Get Money Moxie, Inc. All rights reserved. This article may not be reproduced in whole or in part without express written permission of the author.
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