Is your tax preparer the right fit for you and your needs?
This year, United States taxpayers must file their income tax forms before the April 18 deadline. For many people, major life changes, business ownership or simply a lack of knowledge about the ever-changing tax laws, make finding a trustworthy tax preparer a good idea.
That said, not all tax preparers have the same level of experience and training.
Which type of tax preparer is right? First, it’s important to understand the different types of tax preparers and their qualifi cations. Only enrolled agents, certified public accounts and attorneys may represent their clients to the IRS, on matters such as audits, collection issues and appeals.
An Enrolled Agent (EA) is a tax preparer that has been approved by the IRS, to represent taxpayers. An EA must either have prior qualifying employment with the IRS or pass an intensive two-day exam on federal taxation, and complete a background check.
To maintain EA status, they must complete a specified number of credit hours, each year, of continuing education in accounting methods and tax regulations. An EA may work independently or as part of a firm, and specialize in specific areas of tax law.
An EA is a good option if there’s a more complex tax situation. However, make sure their area of expertise applies to the personal tax situation. Fees and availability may vary, but expect an EA to charge less than a CPA. An EA is also qualified to help with financial planning and give tips that could help reduce taxes in the future.
Certified Public Accountants (CPA) have a college degree (or the equivalent in work experience). They are licensed after passing a state professional qualifying exam and they are highly skilled in accounting This makes them good candidates for complex tax planning and preparation, if they are experienced in handling tax matters and enrolled in continuing education programs that keep them abreast of the constant changes to tax laws. If a return is quite complex, a CPA may be the best choice for tax preparation, but keep in mind, they will charge much more than basic tax preparers.
Tax attorneys often charge the highest fees as tax preparers. For taxpayers looking to shelter part of their income legally or for those who need specialized advice on municipal bonds, estate planning and the like, hiring a tax attorney is a good option.
Non-Credentialed tax preparers are people who work in that business in the United States. They often work part-time or only during the tax season. These preparers must have an active preparer tax identification number (PTIN) through the IRS, but beyond that, regulating tax preparers is done at the state level.
In the vast majority of states, anyone can prepare tax returns for others, without having to take an exam, get a license or comply with other government regulations.
Most tax preparers are legitimate and competent, but keep in mind, that without a national license requirement, they may work off of their own personal research and experience. Because of this, it is important to conduct a thorough interview with the tax preparer, before hiring them.
When it comes to choosing the right kind of tax preparer personally, much will depend on the complexity of the tax situation. After deciding what qualifications a tax preparer needs, the following tips will help choose someone who is trustworthy and competent:
• Review the tax preparer’s credentials. EAs, CPAs and tax attorneys are all qualified to represent their clients to the IRS, on all matters. Other preparers can help with forms and basic matters, but cannot represent their client in case of an audit. Don’t be afraid to ask about these or other qualifications, before hiring someone.
• Be wary of spectacular promises. If a tax preparer promises larger refunds than the competition, this is a red flag. Many such tax preparers base their fees on the amount of the return and may be likely to use shady tax preparation tactics. In addition, it’s wise to avoid tax preparers who offer “refund anticipation loans,” as the client probably stands to lose a large percentage of the return to commission fees.
• Get referrals from friends and family. One of the best ways to find a trustworthy tax preparer, is to ask loved ones for recommendations. Once there are a few options, visit BBB.org, paying careful attention to other consumers’ reviews or complaint details. This will give a clear view of what to expect.
• Think about availability. If the IRS finds errors in tax forms or decides to perform an audit, will the tax preparer be available to help with the details? Find out whether the tax preparer can be contacted all year long, or only during tax season.
• Ask about fees ahead of time. Before agreeing to any services, read the contracts carefully and understand how much the tax preparer charges for their services. Ask about extra fees for e-filing state, federal and local returns, as well as fees for any unexpected complications.
• If things don’t add up, find someone else. If a tax preparer can’t verify their credentials, has a record of bad reviews from previous clients or their business practices don’t seem convincing, don’t do business with them. Remember that if they are retained, this individual will handle sensitive personal information – information that needs to be kept safe from corrupt or fraudulent tax preparers.
