OK. So you’ve decided to skip the sharp pencil routine this year and let someone else prepare your taxes. Who should it be? Aunt Millie? A CPA? Or do you need a lawyer to do it?
Any of these answers could be right. It depends on the complexity of your situation and on the qualifications of the individual who will be doing the work.
Here are descriptions of the qualifications of the folks who have put out shingles for tax preparation, some practical advice on how to find them, and some questions to ask before you commit yourself.
Who is qualified?
The first thing you should know is that the IRS does not certify tax preparers. (They do certify enrolled agents.) Anyone can do tax returns as far as the U.S. government is concerned, although some states impose a licensing requirement. California has education and experience requirements for tax preparers. Generally, anyone who preparers a tax return for a fee--and who isn’t either an enrolled agent, a public accountant, a certified public accountant or a lawyer--must meet the state requirements to become a registered tax preparer.
The only federal regulation of tax preparers is a set of penalties that puts preparers on the hook if they prepare returns that they know are wrong or that they should know are wrong.
As a result, all sorts of people offer tax return preparation services:
Storefront preparers. This includes the big chains, like Jackson Hewitt or H&R Block, and solo operations. These people have all sorts of credentialed and noncredentialed folks, ranging from lawyers and CPAs to totally uncertified. The larger firms have training programs; the smaller ones don’t. The person who prepares your return may not be authorized to represent you before the IRS if your return is audited, but someone else at the firm may be.
Enrolled agents. These are the only people who have passed an exam strictly on taxes. It’s given by the IRS, and the people who pass are entitled to represent you before the IRS if your return is audited. They can even represent you in tax court, if things go that far.
Certified financial planners. In recent years, a number of organizations have offered certification as “certified financial planner.” Their expertise lies in financial planning, estate planning and investments, and may include taxation. But the title does not guarantee it.
Certified Public Accountants. A CPA is an individual who is certified by the state to act as a public accountant based on a test and experience as a noncertified accountant. Many CPAs specialize in taxation, but many do not. CPAs may represent you before the IRS.
Lawyers. Representing you is the specialty of a lawyer. Return preparation usually is not. Your lawyer may prepare your return as a courtesy, but most don’t seek this type of work.
- Clinics. Various organizations offer tax assistance for elderly or low-income taxpayers. In terms of qualifications, these folks are probably most like storefront preparers, but this could vary a whole lot. The big plus of a clinic, of course, is that the fee is usually zero or quite low.
Finding the preparer for you
So where should you look? Your best bet is to ask your friends. Find someone who is happy with a preparer’s work and get the preparer’s name. Friends in similar financial situations are the best source.
If that doesn’t pan out, check with your state’s CPA, legal or enrolled agent organizations. Or you could drive around the neighborhood until you find a storefront. Finally, check the classified ads. You should be able to find a preparer you like. There are plenty of them. If not, you can do it yourself.
Ask questions first
When shopping for a tax preparer, experience counts. You want someone who knows taxes and is up-to-date. So ask a few questions before you go ahead. Here are some good ones:
What is your experience with my type of return? Most preparers can do a simple 1040, but your family’s trust could throw some preparers for a loop. Check out any special requirements in advance. While you’re at it, make sure that the preparer’s experience is current. The tax laws are changing all the time.
Do you know the requirements of all the states where I am required to file? If you have moved from state to state, or you live in one state and work in another, or you have financial interests in other states, you need a preparer with interstate experience. Many preparers are challenged by this, particularly if the other state is more than 100 miles away.
Are you aggressive or conservative? Do you like to take chances or do you like to play it safe? Many tax returns are cut and dried, but some situations could be played in aggressive or conservative ways. Make sure that you hire a preparer who agrees with your level of risk taking.
Will you represent me if I am audited? This question opens the door to finding out the preparer’s audit record. A garden variety preparer should have his clients audited very rarely. Preparers representing certain small businesses or other high-risk taxpayers might have a higher rate, but it still should be pretty low. A high rate could indicate trouble.
- How much do you charge? Is it hourly? By the form? Extra for getting your records organized? Find out in advance. And if possible, get this in writing.
Shopping for the best results
Every year at this time you read about someone who took his tax return to 20 or a dozen preparers and got different returns every time with wildly different fees.
I’m sure this is true, but you could also assemble a group of 20 preparers who will give you the same results in a given situation. It depends on the complexity of the return.
The thing you should learn from these surveys is that you should beware. You don’t want to select a preparer who figures out the lowest tax only to find out the return is full of errors. On the other hand, you might want a preparer who will take an aggressive stance. You are responsible for the return. You don’t want to pay for someone else’s mistake.
And some types of aggressiveness are called fraud. If you want to be aggressive, you still need a preparer who will find a legal basis for your return. In the end, many items of income and many deductions leave you little choice. And all good preparers should treat them the same. There is a right answer. And if you shop around and ask questions, you will stand a good chance of hiring a preparer who will find the right answer for you.
Setting the ground rules
Once you’ve selected a preparer, you should set some ground rules.
First, tell your preparer you want to be called if there are any questions about your records or your situation. You don’t want him to jump to conclusions without checking with you first.
Second, have your preparer let you know in writing what judgment calls were made and gray areas that were shaded one way or the other. These may be unavoidable, particularly if your return is complex, but you should know about them.
- Finally, make sure your preparer signed the return. This does mean something to the IRS: usually that professional work was done. That’s a message that you want to get across.
Run, don’t walk, if your preparer:
- Guarantees you a refund upfront.
- Charges a fee based on the size of your refund.
- Arranges to have your refund sent to an address that’s not yours.
- Doesn’t ask for your background information, such as W-2 wage statements.
- Offers to create documents to support false or exaggerated deductions.
- Asks you to sign a blank form.
- Refuses to give you a photocopy of your return.
- Refuses to list his or her Social Security number and sign the return, as required by law.