Face it: the average person is not a tax professional, so you probably aren’t either. Yet every year you decide to take on the complexities of the tax code all by yourself. Sometimes, it is to the detriment of your finances. It’s no secret that the tax laws can be downright impossible to navigate with their constant updates and changes.
Not to mention, the litany of deductions that are so easily missed. Plus, all of those complicated tax forms you need to fill out. Doing it all yourself is a fool’s errand. It is one that can result in missing out on a bigger refund or, even worse, a full-scale audit.
However, according to the IRS, millions of people each year hire reliable, professional help at tax time. You can’t just hire anybody. Choosing the right tax preparer can be as challenging as navigating your way through a Form 8903.
What is so important about finding the right tax preparer? It could mean the difference between a smaller return and a larger return. It could also mean the divergence between facing serious legal repercussions and fines. That is because you are the one who will be held legally responsible should there be any incorrect or false information found on your tax return.
It is true that mistakes are made. Tax preparation professionals are only human after all. However, the IRS has found that an increasing number of tax preparers miscalculate refunds on a routine basis. There are numerous reports of taxpayer fraud committed by deceitful individuals that honest consumers had relied on to help them meet their tax obligations.
Unfortunately, it can be tough to find the best person who will do exactly what is expected, without malice in most cases. That is due to the fact that the tax preparation industry is severely under-regulated. Any Tom, Dick, and Harry can hang a shingle on their door claiming to know what they are doing. Conversely, in reality, they have vastly inferior preparation skills at best, or willfully intend to defraud customers and take their money at worst.
You can avoid all of that hassle and headache with our guide to choosing the best tax preparer. We will walk you through the do’s and dont’s that come with selecting the right person for the job. We’ll give you some valuable insight into the different types of professionals that exist. Thus, you can hire the specific individual to meet your financial tax needs.
Selecting the Right Tax Professional
When it comes time to file your taxes, it is imperative that you have the correct type of tax professional on your side. Yes, there is more than just one kind of tax preparer. All of whom have various skill sets that make them experts in certain areas of the tax code. Some of these individuals are also bound to specific educational requirements in order to make them eligible to perform their duties.
A CPA and a tax attorney are two very different people. Knowing what makes them different can make tax time go by a whole lot easier. With that said, here are the various types of tax professionals that you may come across in your search for tax filing assistance.
Certified Public Accountant (CPA)
A Certified Public Accountant (CPA) is the most common type of tax preparer that consumers seek out to help them file their tax returns. These individuals are held to certain regulatory and educational standards that require them to pass a state qualifying exam. They must maintain specific licensing in order to provide their form of service.
A Certified Public Accountant may also advocate on your behalf with the IRS in the event you are facing an audit or collections suit. Be sure you speak with any CPA you are considering for hire about whether or not they prepare individual returns.
Some cases may require more comprehensive skills. Especially, when it comes to ironing out all of the complex legalities that come part and parcel with an audit, or any tax dispute in which you owe money to the IRS.
That is where a tax attorney can prove more beneficial than working with a CPA. A tax attorney is a lawyer that is well-versed in the specifics of the tax code. They are familiar with all applicable laws and are able to provide additional assistance. They are knowledgeable about things such as tax planning for an estate or locating other shelters for your income that are in compliance with the U.S. tax code.
An enrolled agent is also a useful ally to have on your side when you are going up against the IRS in just about any tax matter. That is because these tax professionals are required to be licensed by the Internal Revenue Service.
To become an enrolled agent, an individual must pass an exam that demonstrates their knowledge in federal tax planning. Additionally, they need to be well versed in individual and business tax return preparation.
Agents must also prove that they have finished up to 72 hours of continuing education courses every three years. Deciding to go with an enrolled agent could be determined based upon the particular tax problem that needs solving. That is because certain agents specialize in specific areas of tax law.
Filing Season Program Professional
Each year, the IRS allows tax professionals who are not certified as with a public account, a tax attorney, or an enrolled agent. These folks volunteer as part of the agency’s tax preparer program. Anyone wishing to become eligible must first finish 18 hours of continuing education courses for the tax year in which they wish to apply. That also includes a six-hour course and examination on current federal tax law. Although these individuals can be very helpful to your tax situation, they are unable to advocate on your behalf with the IRS.
Preparer Tax Identification Number (PTIN) Holder
Any other preparer that does not fall under the previous categories is grouped in as a PTIN holder. This counts any individual who maintains a current PTIN with the IRS. However, they do not hold a professional license and have not taken part in the IRS annual filing season program.
These preparers are still expected to have the prerequisite knowledge in order to prepare a tax return. They are permitted to perform these duties on a professional basis. Some of these individuals have more training than others. They have earned an accreditation or completed a specific course to obtain a certain type of tax preparation skill.
A preparer tax identification number is mandatory for anyone offering their services as a federal tax return professional in exchange for monetary compensation.
Consumers who are not fully apprised of all the pitfalls in choosing the right tax professional can find themselves in real trouble. They may fall victim to fraudulent activities.
Do not get burned by unscrupulous people looking to part you from your money. Selecting the right tax professional is a process. It continues on well after you have finally decided which type of tax preparer is the proper fit for your particular situation.
Check their PTIN
As we’ve already discussed, the preparer tax identification number is a mandatory component. Every professional must obtain one in order to provide a service in exchange for money. Doing so without a PTIN is illegal.
Therefore, this should be your very first step in finding the proper individual. You need to verify the tax professional’s PTIN status. This can be done by looking it up one the Internal Revenue Service’s Directory of Federal Tax Return Preparers.
Check Their Background
There are a wealth of valuable resources in helping taxpayers hire the best tax preparers. Depending upon the type of tax preparer, consumers have the ability to look into the disciplinary background and status of their licensing credentials.
For Certified Public Accountants, you can search the name of any professional under the National Association of State Boards of Accountancy. For tax attorneys, the State Bar Association is the primary resource to do your homework. Enrolled agents can be verified through the IRS directly.
Don’t Fall for False Promises
One of the ways that unscrupulous tax professionals try to draw in unsuspecting victims is by making lofty promises of large tax refunds. That is even before they take one look at your current paperwork or previous returns.
No tax professional is able to make good on these promises, especially if they haven’t looked at your documents. It’s important to understand this because you could be putting your refund at risk. The IRS could challenge you with an audit if it isn’t done correctly.
They may find incorrect or illegal deductions. That, in turn, leads to serious legal ramifications down the line. It will prevent you from taking advantage of tax breaks and other credits.
Don’t Sign a Blank Return
You wouldn’t sign a blank check and then hand it over to someone, why would you ever do that with a tax return? This is a legally binding document that will reflect on you, and not the preparer. That is important as something may be incorrect or downright fraudulent on the form.
Any tax preparer who asks you to sign a blank return should be dismissed immediately. In fact, any paperwork that you are asked to sign should always be reviewed in full before you put your name to it.
Unscrupulous tax preparers may try to get you to sign paperwork that authorizes them to file your return. Doing so gives them the ability to claim the money from your refund. Once you sign something, it can be very difficult to retract that authorization.
Watch Out for Direct Deposit
When you get your return, you have the choice of receiving it via check or through direct deposit. It’s important to be careful of any tax preparer suggesting that you have the money transferred to any account that is not yours.
It doesn’t matter what line they feed you about speeding up the tax return this way. It is illegal for your money to be placed into someone else’s account via direct deposit. This is the reason why so many taxpayers have been duped by this scam and have lost their money.
Taking a Percentage from the Refund
Another red flag may seem like common sense. Don’t agree to any fee structure in which the money you pay the preparer comes from a percentage of your eventual refund. Most filing services come with flat fees.
Additionally, any tax professional who requests to take a percentage as their fee gives them a reason to take illegal deductions. Also, there are other actions that could boost the amount of your return in ways that will put the refund and you at risk.
Beware of tax professionals who claim they have been endorsed by the IRS. It’s not true because the agency doesn’t offer endorsements of any tax preparer. They do acknowledge credentials and permit professionals to act on clients’ behalf before the IRS.
However, they do not implicitly endorse or recommend any specific individuals to the general public. In addition, the IRS can’t be used in connection with any advertising of a tax professional or tax preparation business.
The IRS mandates that any tax preparer with more than ten clients must file returns electronically. If your tax professional does not offer e-filing, you may want to seek out help with another. Doing this helps protect you and your return.
Relying on Pay Stubs Only
A reputable tax professional will want to review all of your financial records and receipts. They will inquire about your financial situation and income sources before preparing your return. If your tax preparer simply relies on your last pay stub and not a W-2 or other appropriate paperwork, they are in violation of the tax laws.
Health Insurance Penalties
There are a lot of scams where fraudulent individuals try to steal money from unsuspecting victims. With the mandates of the Affordable Care Act in place, anyone who doesn’t maintain proper health insurance coverage is subject to paying a fee.
If your preparer tries to tell you that you will need to pay a fee, even if your healthcare is provided by an employer or through Medicaid, they are trying to rip you off. The scam involves a request that you pay the penalty to the tax preparer.
Though, in reality, no such fee is due. This may sound like common sense, but plenty of people have been swindled before. Therefore, if you owe the IRS a penalty it should solely be paid with your return, and only after the IRS contacts you about it.
You should ask your potential tax professional a lot of questions before you decide to hire them. One of the topics you should address is the subject of fees. Knowing what you’ll be expected to pay before you start working with that individual will save you a lot of time and money later on.
The average cost of a typical tax professional to prepare a standard Form 1040 and Schedule A as well as a state return should run approximately $300. Almost all reputable tax preparers will offer a free initial consultation. However, remember, to avoid any tax professionals who want to take a percentage of your refund.
No Cost Tax Prep Assistance
Some people may qualify for free tax preparation assistance through the IRS. This includes military veterans, anyone over the age of 60, the disabled, or anyone making under $54,000 a year. Additionally, individuals who have a limited grasp of the English language are all eligible for this free help from the IRS. Those who earn less than $62,000 may be given access to free tax software to assist with preparing and filing their tax return.
The IRS Free File Program provides well-known tax software to anyone who meets the necessary income requirements. This service is designed to help you prepare your federal returns. Though, you may qualify for state tax return preparation assistance. It depends on where you live and the qualification requirements in your state.
The companies that are part of this program include H&R Block, Jackson Hewitt, TurboTax, and others. You may not qualify for assistance with every one of them. That is because each has its own eligibility criteria based on factors like income, age, and other determinants. In order to find out which you may qualify to use free of charge, you can contact the IRS. They will direct you to the proper information in their software tool.
If you do not meet the necessary criteria to take advantage of the free tax filing software program, don’t worry. You can still be given access to free tax software with a tax refund estimator if your return is filed on Form 1040EZ or 1040A. It is the most common and simplistic tax forms for filing. TurboTax offers taxpayers free use of their service when they are filing on those two forms.
Free Tax Assistance from a Professional
Tax preparation software programs can be highly beneficial for those who are having trouble paying for the software due to their low income. The software may not be easy for all taxpayers to understand or navigate even with the simplest of return forms.
That’s why selecting the best tax preparer is even more critical when the taxpayer has limited or minimal resources to put toward getting that assistance. Free programs for tax preparation are only useful if they are doing real good in helping an individual file the proper return. For some low-income individuals and families, that means speaking directly to a tax professional. There are a number of ways to qualify for that personal assistance.
Qualifying comes with certain similar criteria to the eligibility standards for getting access to free tax preparation software. Any enlisted military person and their families can get tax preparation assistance on their military base as part of the Volunteer Income Tax Assistance Program. These installations have IRS-trained personnel on site to assist these individuals with their tax preparation needs.
The VITA program is another resource for anyone who is over age 60, making under $54,000 a year, speaks a limited amount of English, or has been dealing with disabilities of any kind. If you only meet the age limit requirement, the IRS offers the Tax Counseling for the Elderly Program.
It is designed to help elderly taxpayers work through any pension and retirement income questions on their tax returns. The volunteers who work under the program are all IRS-trained and they can be relied upon to get the job done properly.
Our Final Thoughts
Finding the best tax preparer is all about having the right knowledge before you start your search. That means understanding the types of tax professionals. Thus, you can delineate between them to better serve your particular tax preparation challenges.
It’s also about knowing which red flags are telling you that your professional may not be all that he or she is cracked up to be. Don’t be swindled by shysters and crooks that make lofty promises but don’t deliver anything more than an empty bank account. Reputable tax professionals will always review your financial history before they make grandiose statements of large refunds. Never agree to pay a fee based on the percentage of that refund.
Always review any return before you sign it. Never sign a blank return either. This is crucial because your return is a legal document that binds you to the information that has been included on it. Should any of your information be willfully fraudulent it could result in serious legal problems.
Above all else, be sure to ask questions no matter how dumb you may think they might be. Chances are you’re asking all of the right ones. That will better inform you to make the proper decisions with regard to your tax obligations. Should you be getting tax deductions for job search expenses or not? The right tax preparer can answer that question for you.