Learn About Taxes:

Choosing the Right Tax Preparer

In today's fast-paced world, many of us do not have the time, or the inclination for that matter, to prepare our own income tax returns. However, having someone else, be it a CPA, enrolled agent or tax preparer, does not absolve us of our responsibilities. We are the ones who are held responsible in the end by the IRS if our tax returns are audited, not our preparers. Therefore, choosing a tax preparer should not be a hit-and-run decision. Tax paperwork is such an annoyance to so many people that they are content to hire the first person they come across who is willing, although not necessarily qualified, to take the job. Procrastination also causes problems when people wait until the deadline is near and are forced to accept any preparer who ha the time to fit them in. There may be a very good reason why these preparers have so much time on their hands so close to the tax deadline!

The first thing we need to know in preparing to select a tax preparer is the types of preparers available to us.

There are three types of people who prepare returns professionally.

Certified Public Accountants (CPAs)
A CPA is licensed by a state agency and is required to maintain their knowledge base through continuing education. CPA's can often provide useful financial planning advice in addition to tax preparation. CPAs are authorized to represent taxpayers at IRS hearings and audits. On average, this group is the most expensive of the three.

Enrolled Agents
An enrolled agent is certified by the IRS and many are former employees of the agency. They are also authorized to represent individuals during hearings and audits. Enrolled agents also have to maintain continuing education requirements.

Tax Preparers
Tax preparers may be financial planners, retired accountants or someone who prepares returns on a part-time basis. They have no licensing or education requirements other than those imposed by the establishment they are employed by. Generally speaking, tax preparers are less expensive than the other two groups.

Tax preparers can range from certified experts with credentials who are knowledgeable in new tax changes through continued education to an unlicensed, unqualified person with a pencil and calculator trying to make a little extra money to pay off holiday debts. Unfortunately, tax preparers are not required to be licensed, certified or even trained. There are four key elements that help to determine how you should choose a tax preparer.

  1. Need - Determining the level of expertise your return requires is a key element in choosing a tax preparer. The more complicated your return, the more expertise you should look for. An ideal preparer is used to dealing with the forms you are required to file.
  2. Cost - Most preparers either charge on an hourly basis or by the forms needed to complete your return. Pay scale is also tied to expertise. The more you need, the more you should expect to pay.
  3. Qualifications - Tax preparers should be current on the constantly changing tax laws. Seek those who have taken continuing education courses within the last six months. Advisors often have different training and areas of expertise. Find a preparer whose credentials meet your needs. For example, if you are interested in choosing someone who can represent you in the event of an audit, you should choose a CPA or enrolled agent.
  4. Practice - Depending on what you are looking for in a preparer, you may elect to choose someone who can just take care of the paperwork, while others might be looking for real counsel as well. Find out who is going to be handling your return and their qualifications, it may not be the person you are meeting with.

Tips For Choosing a Tax Preparer

  • Stay away from preparers who guarantee a refund. (The IRS has a hitlist of preparer's with a history of problems and their clients are more likely to be audited.)
  • Stay away from those who get paid based on how much you get back.
  • Be wary of any tax preparer who knows tax preparing techniques and deductions that no one else knows.
  • Ask how the preparer handles gray areas of the tax code. You may not be endeared to a preparer who takes all kinds of odd deductions that may make you more likely to become the target of an audit.
  • Find out what percentage of the returns prepared by the advisor has been audited in the past few years. If it is 1 or 2%, be wary and ask why.
  • Ask whether the preparer has ever been subject practitioner penalties. You'll have to follow your instincts as far as analyzing their answer goes. They are not required to answer the question, and if they do, there is no way for you to verify their answer.