How To Choose a Tax Preparer: 6 Factors To Consider
It’s tax season and that means it’s time to meet up with a tax professional to help you prepare and submit your tax return. But not all tax preparers are created equal, and some might end up hurting your finances if you’re not careful.
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If you are on the hunt for a high-quality tax preparer, here are the top factors to consider when choosing a tax professional to work with.
Figure Out What Your Tax Needs Are First
Before you hire a tax preparer, it’s important to know what you need. This can include:
- Personal tax preparation
- Business tax preparation
- Rental home income taxes
- Audit representation
- Sale of a house
- Other complex tax situations
While some of the popular tax preparation services (such as H&R Block) may be adequate for simple personal taxes, more complex tax needs may require the help of a specialist.
Once you take inventory of everything you need help with, you can find a qualified tax specialist who has experience in those areas.
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Make Sure the Preparer Is Licensed
Not all tax preparers are licensed.
While the IRS does require tax preparers to apply for a preparer’s tax identification number (PTIN), they are not required to be certified or licensed in any way.
If you need help with more than just a simple personal tax return, it is best to seek out a licensed tax professional. They are held to a higher standard than non-licensed preparers, they must meet specific requirements to become licensed (including passing several exams), and also are able to represent you before the IRS if needed.
There are three types of tax preparer licenses:
- Certified Public Accountant (CPA): CPAs are licensed by the state and are required to have a bachelor’s degree, pass the four-part CPA exam and take continuing education classes each year. Some states also require at least one year of professional experience before being able to get a CPA license. This makes CPAs well-studied and experienced accountants who are well-versed in tax law.
- Enrolled Agent (EA): Enrolled Agents (EAs) are licensed by the IRS directly, and are allowed to practice in all 50 states. There are no formal education requirements, but applicants must pass the Special Enrollment Examination (SEE), a three-part exam given by the IRS. Unlike CPAs, Enrolled Agents are focused purely on tax matters, making them a great choice for both personal and business taxes in any U.S. location.
- Tax attorney: Tax attorneys have completed law school, passed the LSAT and passed the state bar exam in the jurisdiction in which they wish to practice. Some states also offer a tax law specialist certification, though this is not required. Tax attorneys can represent you before the IRS and can help with all different matters of tax law, making them a good choice for more complex tax situations.
You can search through the IRS database to find a licensed professional in your area.
Does the Preparer Belong To a National Organization?
While working with a licensed tax professional is a great baseline, you may also want to find a tax professional who belongs to a national organization for tax preparers. Most of these organizations have high standards, expect members to adhere to a code of ethics and may even offer additional certifications.
Here are a few professional tax organizations you can search through to find a tax preparer:
- National Association of Tax Professionals
- National Association of Enrolled Agents
- American Institute of Certified Public Accountants
- American Academy of Attorney CPAs
Each of these sites lets you browse for current members on their websites to find a qualified tax preparer for your needs.
Ask About Fees
While some tax preparation services offer transparent pricing up front, others might hit you with a large bill on the back end. It is important to review your tax preparer’s fee schedule before working with them (which means you need to know what services you require). Some charge flat fees for different services, while others charge an hourly rate.
You can further protect yourself by getting the fees in writing, with each part of the service itemized so you know exactly what you are paying for. And you should avoid paying your tax preparer a percentage of your refund, as this practice is prohibited by the IRS.
Confirm That the Preparer Can Represent You in Case of an Audit
While the minimum requirement for a tax preparer is holding a preparer’s tax identification number (PTIN), this does not give the preparer authority to represent you if you get audited. The IRS has strict guidelines around who can handle your audit on your behalf, and it requires holding a professional designation (such as EA, CPA or tax attorney).
And just because a tax preparer is licensed and can help in the case of an audit, it doesn’t mean they will. Make sure to ask ahead of time if the tax firm offers audit assistance or representation services. You want to know you can count on them to help if the IRS comes knocking!
Avoid Tax Preparers Who Do These Things
While it’s important to find licensed tax professionals who offer transparent pricing and are held to a higher standard, there are several red flags to watch out for when interviewing a tax preparer:
Basing their prices on your refund size. Not only is this practice illegal, but the preparer may also be inflating your refund number to get paid more. And if you get audited, most preparers who do this are not licensed and can’t help you anyway. Do not work with someone who has this pricing model.
Advertising high refunds. Your tax return should represent a complete and accurate accounting of your income and expenses to the IRS. If a tax preparer promises a high refund, you may want to avoid them. They might bend (or break) the law to get you a higher refund, only to leave you high and dry when the IRS comes looking for its money.
Won’t sign your tax return. If a tax preparer refuses to sign your refund or says they “will get to it after you sign,” you should not use them. You want to only sign your return after receiving a copy with the tax preparer’s signature and PTIN listed on the document.
Finding a high-quality tax preparer is important because working with the wrong one could end up costing you money (or worse, an audit from the IRS). Luckily, there are some great resources to help you find licensed preparers and avoid working with any shady tax preparation businesses.
Just remember, get everything in writing and make sure you completely understand what you are paying for before signing on the dotted line.
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