Filing your taxes on your own is all well and good, but sometimes you want to get a professional involved so you can be sure that you’re doing everything correctly and aren’t paying more than you owe.
Finding the right tax preparer is sort of like dating – you need to find the right match – but with the added stress that picking the wrong person could end up costing you a lot of money (which, actually, is also like dating, but that’s a topic for a different time).
Everyone will have their own needs, but whether you’re going to an individual tax preparer or a big firm like H&R; Block or Jackson Hewitt, there are a few basics you should know before you open your bank account to someone.
Credentials and qualifications to look for
Sure, your neighbor might brag about how he always gets a big refund every year, but when you’re handing your own taxes over to someone you want them to have some sort of qualifications other than a recommendation from "guy off the street." Luckily, there are some things you should look for in your tax preparer to tell you that they know what they’re doing.
Your tax preparer should have a preparer tax identification number (PTIN).
This is required for "all enrolled agents, as well as all tax return preparers who are compensated for preparing, or assisting in the preparation of, all or substantially all of any U.S. federal tax return, claim for refund, or other tax form submitted to the IRS," with a few exceptions listed by the IRS.
The IRS divides tax preparers into two groups: those with unlimited representation rights, and those with limited representation rights.
If a preparer has unlimited representation rights, they can "represent their clients on any matters including audits, payment/collection issues, and appeals."
An enrolled agent is licensed by the IRS, and they have to go through a 3-part test issued by the IRS and take continuing education courses so that they’re keeping their skills up to snuff. They specifically deal with taxes.
On the other hand, certified public accountants, or CPAs, have more general accounting knowledge, although some specialize in tax prep. You’re probably more familiar with them since you might use a CPA to help with other areas of finance like retirement planning or estate planning. CPAs have to pass the Uniform CPA Exam, so be wary of anyone calling themselves a CPA if they aren’t "official."
Attorneys are...well, they’re attorneys. Maybe you call them lawyers. Maybe you have some jokes with real biting punchlines about lawyers. Any attorney can prepare your taxes with unlimited representation rights, but, like CPAs, some specialize in taxes.
If your preparer has limited representation rights, it essentially means they don’t fall into one of the three groups above and they can only represent their clients in some situations – for example, "only before revenue agents, customer service representatives, and similar IRS employees" and only for people whose taxes they actually helped file.
Limited representation preparers still need a PTIN, but they don’t need to be an enrolled agent, a CPA, or an attorney (and keep in mind that almost anyone with a Social Security Number and $50 can apply for a PTIN).
Limited representation preparers also include people who have gone through the IRS’ Annual Filing Season Program – basically a training program for people who want to be tax preparers but don’t have the above qualifications.
Questions you should ask
What are your qualifications and credentials?
All you need to do is read the section above and see what part they raise their hands at!
But seriously, you should know their past dealing with taxes. Specifically, you want to know if they have unlimited or limited representation rights. It’ll give you a good sense of their experience, and you’ll know how much support you can expect from them if you get audited.
You can also ask, in the case of CPAs and attorneys, how specialized their knowledge is when it comes to tax prep in particular.
What types of returns have you prepared in the past
If someone is licensed, they probably have a pretty good idea of how to handle your taxes. But the types of returns they’ve done in the past can be a good indicator of how smoothly the process will go.
For example, if you’re employed with no dependents and no complicated investments, pretty much anyone could do your taxes (and you could probably do them yourself).
But if you’re a freelancer, you can write off a lot of things. If you have a medical issue, you may be able to make automobile deductions if you’ve used it to treat your condition. Tax preparers who have experience dealing with situations like your own could be in a better place to not only file your taxes more quickly, but know just how to get you the most money possible on your refund.
How much will it cost?
A pretty straightforward question, but an important one. Whether you’re expecting to pay taxes or to receive a return, you don’t want to spend more than you need to to actually file. Find out how much it costs before you agree to anything.
Some tax preparers will offer you a refund anticipation check, where you don’t have to pay for your tax prep upfront; the tax preparer will deduct the amount from your refund and transfer the remaining amount to you. Don’t fall for it. H&R; Block’s refund anticipation check service, for instance, adds nearly an additional $50 to your tax prep costs.
At the very least, find out how they calculate their fees. It’s illegal for tax preparers to base their fee on a percentage of your refund, so you should walk if that’s what they offer.
What documents do you need?
What should you bring when you meet your preparer? Our tax prep checklist is a pretty good place to start, but ask your preparer specifically what he needs so that you have everything together when you go. Freelancers will need different forms than a salaried employee.
The last thing you want to do is put off filing your taxes for even longer because you didn’t have the proper paperwork with you the first time.
What happens after my taxes are filed?
Ideally once your taxes are filed, that will be the end of things. You’ll get your refund (or maybe have to pay – but we hope not!) and it can be out of mind until the next time you need to file. But occasionally you’ll have to follow up with your tax preparer.
One thing you should make sure is that you get a copy of your return. It’s important to keep as part of your records in case you need to refer to it, and it can be helpful to have on hand next year; it can make things easier for a preparer to know what your taxes looked like in the past, and if your financial situation hasn’t changed much it can give you a pretty good idea of what you’ll be paying next time.
You should also find out what happens if you get audited. The chances are slim, but if it does occur you want to know what sort of support the tax preparer will give you. Will she be on hand to answer any questions that come up? Will she be directly involved with communicating with the IRS? Remember that the answers to these questions will depend on whether or not your tax preparer has unlimited or limited representation rights.
It’s best to prepare for the worst, so knowing how much help you’ll have if things go south is crucial.
As always, the best place to start when it comes to tax questions is the IRS. I know, we don’t like the IRS because they take our money, but it’s in their best interest to have tax filing go as smoothly as possible, too.
The IRS provides a database so you can search for tax preparers with unlimited representation rights, as well as those who have passed the Annual Filing Season Program.
The AICPA, the American Institute of CPAs, has a tool to find a CPA – handy during tax season or whenever you need an accountant.
If you’d rather go for the "big box store" equivalent of tax prep, search out an H&R; Block, Jackson Hewitt, Liberty Tax Service, or similar tax prep chain. Some banks also offer tax prep services and some, especially credit unions, will help you file for free.
Finally, you can always get some personal referrals. Ask your friends, family, and co-workers if they have a tax preparer who has been easy to work with and has done a good job with their taxes. The Internet is great, but there’s nothing like getting someone you personally trust to point you in the right direction.
Image: 401(K) 2012