Horizon Planning

“For a large majority of people, TurboTax or the Internal Revenue Service’s Free File is more than sufficient,” says Certified Public Accountant Jonathan Horn. “However, the tax code is so complex that you may not properly analyze all the deductions and credits available to you.”

Returns become difficult to complete when a filer has more than a W-2 and deductions for mortgage interest and children, says Larry Campagna, an attorney at firm Chamberlain, Hrdlicka, White, Williams & Aughtry. For those with deductions like extensive stock trades or real estate transactions, he says tax software may not be the best choice. “A lot of issues are subject to interpretation, and TurboTax may not prompt you with the right questions.”

To find a reputable tax preparer, experts recommend asking friends, family or a professional association for referrals.

Everyone’s tax situation is different. “You need to match the level of complexity of your return with the qualifications of the preparer,” says Sherrill Trovato, president of the National Association of Enrolled Agents. When evaluating potential candidates, know what special circumstances (ie: small business owner, trust fund…) you have on your return and make sure they have expertise with these issues.

Before hiring a tax preparer, conduct an interview to see if it’s a good fit, recommends Cindy Hockenberry, Tax Knowledge Center supervisor at the National Association of Tax Professionals.

Consider your comfort level for divulging your finances, says Trovato. If you’re looking to establish a longstanding relationship with a preparer, she advises working with a sole practitioner over a national firm like H&R Block and Jackson Hewitt Tax Service.

The IRS has guidelines in place to help protect consumers from fraudulent preparers. “All paid tax preparers are required to be registered with the IRS,” says Hockenberry. “Ask whether they have a Preparer Tax Identification Number (PTIN).”

The IRS issues PTINs to qualified tax preparers, and only preparers with PTINs can sign a return, according to IRS regulations. If a preparer receives any compensation to complete a return, they must also sign the return. PTINs are issued to enrolled agents (EAs), registered tax return preparers (RTRP), certified public accountants (CPA), and attorneys. “If your preparer doesn’t have a PTIN, walk away,” advises Hockenberry.

Registered tax return preparers (RTRP)

Each type of preparer has a different level of expertise. RTRPs are required to pass an IRS exam and attend 15 hours of continuing education every year, according to newly-established IRS guidelines. They are able to sign and prepare tax returns and represent clients to the IRS in limited circumstances, such as for an audit but not for an appeal. At the moment, there are no RTRPs on the market because the IRS recently created the exam and is in the process of determining a passing score.

Enrolled Agents (EA)

EAs can either sit for an IRS exam or have five years work experience for the IRS, according to IRS guidelines. They are also able to represent an individual to the IRS for any tax matter. EAs must complete 72 hours of continuing education every three years.

Certified Public Accountants (CPA)

CPAs have met state guidelines that include having bachelor’s degree with a designated amount of business and accounting courses, passing the state’s CPA exam, and working for an accounting firm for a certain period of time. Each state sets continuing education requirements for CPAs.  

“An accountant has a broader picture of financial matters in that an EA is focused solely on the tax code,” says Horn. CPAs can also advise on retirement planning, estate and gift tax planning, and education expense planning.

Attorneys

“Attorneys can also help prepare taxes when there are more complicated and sensitive issues with a return,” says Campagna. Issues like distributions from foreign trusts or bank accounts, unreported income or overstated deductions in a current or prior years return, or legal fees, could make hiring a lawyer to file your return a good idea.

Because lawyers tend to have high fees, experts advise hiring one only when there are  significant tax liabilitiesor refunds. “The average consumer doesn’t need a lawyer to do tax returns,” says Campagna.

What to Ask

Find out if the preparer is a member of a professional organization. An organization may require their members to adhere to a code of ethics or have more stringent continuing education requirements than what’s required by the IRS, says Trovato. Being a member of a professional organization also shows a level of commitment, adds Hockenberry.

Ask about a tax preparer’s fees. Fees for a national firm may not be cheaper than what a sole practitioner may charge, and sole practitioners generally have lower fees than accounting firms, says Horn.

According to the National Society of Accountants, fees per form can range between $233 for an itemized Form 1040and Schedule A that’s filed by an individual to $695 for a Form 1120 that’s filed by a corporation.

Ask whether a tax preparer charges by the hour. “If the preparer is not familiar with your tax situation, you don’t want to pay to get them up to speed,” says John Ams, executive vice president of the National Society of Accountants.

In any case, it’s illegal for a tax preparer to charge a fee equal to a percentage of your refund.

Ask how long the tax preparer has been in business. “Experience equals knowledge because the laws keep changing,” says Hockenberry. Contact your state’s Better Business Bureau or licensing board or the IRS to check for complaints or disciplinary actions against the tax preparer.

Ask whether the preparer works year round. “Since questions arise all the time that affect your return, such as marriage, divorce, death, starting or closing a business, or buying or selling properties, I would rather get a call before someone does something instead of in March, during tax season,” says Trovato. A tax preparer can help prevent unexpected tax liabilities if you seek their advice before making major financial decisions.

Ask whether a preparer has professional liability insurance. If there is an issue with the return, the taxpayer is responsible for any amounts due, but a preparer’s insurance policy may cover any penalties and interest owed because the preparer made a mistake on the return, according to Hockenberry. If the preparer does not have a policy and you owe penalties and interest because of a mistake in your return, you may have to take them to court.

Once you choose your tax preparer, there are a few tips to follow. While the return is being completed, your tax preparer should ask for documentation and receipts, says Hockenberry. Once the return is complete, make sure your tax preparer signs the return and writes their PTIN.

“Never sign a blank return,” says Horn. “You’re responsible for what’s on the return.” Once tax forms are completed, everyone advises that taxpayers spend time reviewing their returns to see that the numbers make sense based on their income and expenses.