Let’s get to today’s topic: 10 Things You Should Look For in A Tax Professional. Or like I like to say, what makes someone more qualified than you to prepare your tax return and charge you a nice chunk of change for the privilege?
Number 1. Do they have a PTIN? A what? OK, a PTIN is a Preparer Tax Identification Number. It is issued by the Internal Revenue Service. Anyone wanting to prepare a tax return and charge a fee for their service is required to register with the IRS, pay a fee and obtain a PTIN. PTINs must be renewed each year.
Number 2. What is the Preparer’s History? Just having a bunch of letters after your name doesn’t necessarily indicate the experience or quality of the individual. You can and probably should check with the Better Business Bureau, State Board of Accountancy for Certified Public Accountants, your State Bar Association for attorneys and the IRS Office of Enrollment for enrolled agents to find out if there have been any complaints or disciplinary actions taken against your prospective tax preparer. Ask them questions, both about their experience and about your specific tax situation. Just because someone is an attorney, a CPA or an Enrolled Agent, doesn’t necessarily mean they have the experience you need to handle your personal or business tax situation.
Number 3. Don’t hesitate to ask questions or interview a prospective preparer to ensure you are comfortable with their understanding of specific orspecialized needs you have? Do you need someone with expertise in military member tax situations? Business? Retiree? Income from multiple states or countries? Ask questions until you are satisfied the individual you are going to work with understands your tax situation and can navigate the Tax Code to address your specific or specialized needs.
Number 4. How do you charge? Avoid preparers that base their fees on a percentage of your refund. First, this is NOT an ethical best practice. Second, you want to ensure your preparer isn’t looking to inflate their fee by bending, stretching or ignoring rules resulting in you getting a bigger refund than you are legally entitled to so they can charge you a higher fee. Also avoid preparers that claim they can get you a bigger refund than some other preparer. Also, be careful in shopping around for the lowest price. I am a firm believer in you get what you pay for – especially if what you’re paying for is low cost support. Would you shop for the cheapest cancer care doctor or brain surgeon if you needed one? Probably not. Don’t settle for the lowest cost tax preparation service just because they were the cheapest. Now, I’m not saying you should have your tax return prepared by an attorney or a CPA because their rates are higher than other places. Some people may need the types of services these professionals provide. Many taxpayers can find more affordable options as their situations do not require the type of specialized expertise of a tax attorney or accountant.Number 5. Do they offer electronic filing? Any reputable tax preparer can easily meet IRS suitability requirements to be Electronic Return Originators. An electronically filed return is more secure, and results in less errors than manual paper filed returns. Electronic filing speeds up refund processing tremendously. Which there’s less of a chance of your return getting lost and you will get your refund in hand much quicker than if you mail it in. Many times, errors that can delay or derail you getting your refund for weeks can be immediately identified with an electronically filed return and quickly corrected. There just is no reason in this day and age to use a tax preparer that doesn’t electronically file tax returns. While there are still some instances where specific forms or types of returns may not be eligible to be electronically filed, but they are few and far between.
Number 6. What information do you need to provide? Understand up front what you need to provide to have your tax return prepared accurately. The preparer should ask you for copies of prior year tax returns to identify any items that need to be reviewed for impact or inclusion on this year’s return. The preparer should require all records and receipts necessary to accurately prepare your return. Preparers should not encourage you to file your return before your W2 or investment documents come out. This is a bad practice. While you might be able to save some time in getting your tax return filed, you are significantly increasing the chance of receiving a dreaded IRS letter because they have information that doesn’t show on your return because you filed before all your paperwork was received. This can result in anxiety when you get a letter, and having to pay additional fees for someone to amend your return to address the missing items. You also may end up having to pay hundreds if not thousands of dollars in additional taxes, penalties and interest for incorrectly filing your return in the first place. If you are filing a joint return, the preparer should involve both taxpayers in the preparation of the tax return. While it may be common for one spouse to deal with financial or tax issues more than the other, the preparer should ensure they do not rely on information only provided by one spouse. A joint return signed by both spouses makes each spouse jointly and severally liable for the accuracy of the return. You want a preparer that treats each spouse as an equal party to the return.Number 7. What do they do after April 15th? You want to know if your preparer is going to be available after April 15th if you have any questions or correspondence related to the tax return they prepare. Understand up front how to you get help after the return is filed and after the April 15 deadline. Many preparers are part time or seasonal employees until April 15th. You want to know who and how any tax issues that may come up after April are handled.
Number 8. Understand who has access to your information. Privacy and data security issues are in the news almost daily. Identity theft is one of the fastest growing crimes in the world. We are surrounded by technology most of us haven’t a clue how they work. Is my data in the cloud? What does that even mean? Reputable preparers will have security measures in place to protect the papers, records and receipts you provide to prepare your return, the data on the computers used to prepare your returns, the communications channels used to transmit your return data from the preparer’s computer to the IRS, credit or debit card information related to paying for your services and any physical records required to be retained by the preparer after your return has been filed. The preparer should not provide your information to anyone outside the normal processing without your written permission. Ask questions on how your information, both records and receipts and the digital files are safeguarded by the preparer and their firm.
Number 9. Find out who will actually sign the tax return. If someone other than the preparer is the one that signs the return, you may consider having these conversations with that person as well. In fact, if someone else is going to sign your return, maybe that’s who you want to deal with in the first place. Avoid the middleman.
Number 10. What happens if “gulp” you’re audited? While the taxpayer is responsible for what they sign for on the tax return, it is best to know up front what audit support is available if you receive the dreaded letter from the IRS or state on your tax return. Be comfortable with the level of audit support offered compared to the complexity of the issues on your tax return. Be comfortable with the professionalism, expertise and experience of the preparer that they will ask you enough questions and conduct what is known as sufficient due diligence to prepare an audit proof return. No preparer should guarantee your return will not be audited. There certainly are procedures that preparers should follow to reduce the likelihood of you being audited.
I have to admit, I have a vested interest in people using paid tax preparers to prepare this year’s income tax return. Can you prepare your own return? Probably. There are many resources available in the marketplace today to aid taxpayers on preparing and filing their tax returns at little or no cost. Should you prepare your own return? My advice to you is use some common sense. While most tax software is pretty easy to follow, with simplified steps for ease of use, it is also very easy to prepare a bad tax return. Anyone is capable of preparing a tax return either on line, with other software or by hand and filing a totally incorrect return. The mistake you make may merely cost you by overpaying tax you otherwise didn’t owe or it may be a costly error resulting in misreported income and underpayment of tax that results in hundreds or thousands of dollars in additional tax, penalties and interest.
Jeff Randall is a Principal Tax Advisor for Tax Break and a coach for Faith-based Financial Fitness. Reach him at firstname.lastname@example.org.