More than half the nation’s taxpayers sharpen their pencils or boot up their computers to prepare their own tax returns every year, according to the Internal Revenue Service. But the rest need help, and that means finding a good tax preparer.
How do you know if you should consult a professional? And where do you begin looking for one?
Donna LeValley, a tax attorney and contributing editor of J.K. Lasser’s “Your Income Tax 2005,” said the main reason people seek help is that there’s been a big change in their lives.
“Any time you have a major life event — a marriage, the birth of a baby, the purchase of a home — you might want to consult a tax professional,” LeValley said.
Say, for example, you’ve bought your first home. You’ll be eligible for property tax and mortgage interest deductions, LeValley pointed out. And you should begin saving receipts for home improvements, since these can reduce your potential tax liability when the home is sold.
“A tax professional can open windows to deductions that are out there for you,” LeValley said. “You can use it as a roadmap to do your own taxes going forward, or you can go back year after year or only occasionally for a checkup.”
Other events that could send taxpayers in search of help include dealing with an inheritance or calculating the tax liability on the sale of stocks, she said.
Tax preparers have varying degrees of training and certification.
Certified public accountants, enrolled agents and attorneys can prepare tax returns and represent taxpayers before the IRS. CPAs must complete a series of training programs and pass a national exam before they are licensed by states, while enrolled agents are licensed by the federal government. Attorneys must pass bar exams in the states where they practice.
These professionals also help with long-term tax planning.
Commercial firms such as H&R Block Inc. and Jackson Hewitt Inc. train thousands of tax preparers a year to help mainly low- and middle-income families with relatively uncomplicated returns. These preparers are allowed to work on returns and answer questions for the IRS; the companies also have enrolled agents to represent clients in disputes.
Bob D. Scharin, a tax attorney who edits the RIA’s Practical Tax Strategies newsletter, said one of the best ways to find a good tax professional is to ask family and friends for recommendations.
“Try to speak to people with similar tax issues,” he said. “For example, a self-employed person will probably have a more-complex return than an employee.”
The next step, he said, us to look at the tax preparer’s credentials.
“If you’re concerned about needing ongoing representation, you’ll also need to find out if this person will be there all year round or just operating a seasonal office,” he said.
Scharin said that basic questions for any preparers are:
- What are you going to charge?
- How and when will I be billed?
- When can I come back and pick up my completed tax return?
- What happens if I have issues with the return? Will someone be able to make necessary changes, and is there a fee for that?
- If I’m audited, will you represent me?
Scharin noted that the IRS in recent years has been cracking down on fraudulent tax preparers but that rogues can escape the federal net. There are “red flags” that should prompt taxpayers to avoid some preparers, he said.
“If a person tells you the fee is based on the size of your refund, I’d be concerned,” he said. “I’d also think twice if the person is pushing some special way you can get away with paying no tax, like establishing a religious organization to shelter all your income.”
The IRS also warns taxpayers to be wary of preparers who push taxpayers to inflate expenses, create fall deductions or claim excessive exemptions.
“You should be as careful (in choosing a tax preparer) as you would in choosing a doctor or a lawyer,” the IRS says. “It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.”
