Do Your Homework 
Before Hiring A Tax Preparer  

Despite repeated promises from Uncle Sam to simplify the tax code, those 1040’s just seem to get more complicated every year, and estimates are that more than 50% of taxpayers will seek professional tax advice this year.  Here is some advice for anyone looking for a tax preparer.

As people move into higher brackets, deal with capital gains or losses from mutual fund and stock trades, and deal with other complexities, more and more individuals are giving up on trying to figure it out themselves. But most people don’t understanding the different types of help out there, and they just end up going to the phone book and looking under ‘taxes’. Don’t trust this important process to random selection. Do your homework before you pick someone to prepare your taxes.” 

The following are suggestions from the National Association of Online Investors on the minimum things you should know before hiring a tax preparer. 

1. Understand The Environment 

Large portions of the tax preparation industry are unregulated – anyone can call themselves a professional tax preparer and hang out a shingle. So you need to do your homework. Also understand that YOU must supply all of the raw data related to income, expenses, deductions, taxable events such as stock trades, etc. No legitimate tax professional is simply going to “estimate” some numbers because you can’t find the receipts.

 2. Understand Your Choices

Once you’ve decided to get tax help, your first task it to understand what type of tax professional fits your circumstances. Here are your choices. 

Nonlicensed Tax Preparers. – This category of tax preparer is usually trained by the company that employees them. These employees must then pass in-house proficiency tests. But these individuals are neither licensed nor subject to the oversight of a regulatory organization. Because this type of help is the least expensive, averaging about $120 for individual federal and state tax return preparation, it may be the best option if your taxes are simple. You should be aware, however, that nonlicensed preparers are not authorized to represent you in an audit or other proceeding initiated by the Internal Revenue Service. Contact your local Better Business Bureau to see if there are any complaints related to a company you are considering. Find your local BBB at http://www.bbb.org . 

Enrolled Agent – EAs are individuals who are licensed by the IRS to prepare taxes. Unlike CPAs and attorneys, who may or may not choose to specialize in taxes, all Enrolled Agents specialize in taxation. EAs must receive tax training and meet certain criteria. They are authorized to represent you before the IRS. Typically the fees for an EA are higher than those of a nonlicensed preparer but normally less than the fees for a CPA. Consider an EA if you either have fairly complex taxable transactions or if you are seeking tax advice over and above simply getting your returns prepared. You can get more information about Enrolled Agents and search for one near you on the Web at http://www.naea.org . 

Certified Public Accountant – As your returns increase in complexity, the next level of preparer to look at is the CPA. If you have a small business or a sub-chapter S corporation, you will be well served to find a tax expert who does more than simply prepare taxes but also provides tax advice and tax planning. This is what a CPA does. Make sure you find one who specializes in individual (not corporate) taxes and then develop a continuing relationship. While tax form preparation is required only once a year, tax planning is a year-round process. CPAs are licensed by states and requirements vary. Two places to go on the Web to search for and check out a particular CPA are the site for the State Boards of Accountancy, http://www.nasba.org, and the site for the American Institute of Certified Public Accountants, http://www.aicpa.org. Since your CPA is essentially a partner, try to get a reference before selecting one. 

Tax Attorney – Don’t go to a tax lawyer to fill out your 1040 EZ. This level of tax assistance is reserved for those who are dealing with major-league complexities such as the sale of a business or items such as estates or trusts. But even with these types of transactions, a tax attorney is probably over-kill unless you are anticipating a serious disagreement with the IRS. Tax attorney expenses are obviously the highest of the categories listed. If you think you need a tax attorney, try to get a reference. Otherwise check with your local Bar Association. 

3. Do Your Homework 

Once you have selected your tax preparation category, its time to find and evaluate one, or several, individuals. Seek out references from friends, coworkers or your other professional contacts such as your attorney or your financial planner if you use one. Get a “short list” and then interview each.  

At a minimum, ask these questions: 

1.   What services do you offer and do you specialize in any specific tax area?

2.   What are the fees for each service?

3.   Who exactly will I be working with and what are their qualifications?

4.   What is your experience with IRS audits and how often does this happen with returns you have prepared?

5.   What guarantees are there if my return is sent back for correction and I am penalized? Will you pay the penalty or part of it?

6.   What exactly happens if the IRS sends the return back with errors? Will you assist me in correcting the errors? If so, is this service free or are there additional fees?

7.   What if I get audited? Are you authorized to represent me before the IRS? If so, at what cost? If not, what additional services will you provide and at what cost?

8.   Do you generally take an aggressive or a conservative approach to taxes?

9.   Are you open and in business year round?

10. Is the person assigned to me a full-time employee or part-time? If part-time, who do I contact if problems arise later?

11.   Can you provide multiple customer references?

Make sure you get acceptable answers to each of these questions and always get in writing exactly the services to be performed and the related costs for each service. Simple tax preparation should be done for a fixed fee. However, make sure you understand fees for contingencies, such as the IRS not being happy with what you submit.

4. Check and Understand Your Return Before Signing It

Finally, always keep in mind that regardless of who prepares your taxes, YOU are ultimately responsible for them to the IRS. So, when you get your tax returns back, make sure you take the time to review them carefully and ask questions on any item you don’t understand.

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