How and why to find a tax pro [Infographic]
February 22, 2017
Big life changes like buying a home, marriage, divorce, or kids can make doing your own taxes complicated. So can running your own business. Or maybe you simply don’t feel as organized as you’d like. If you’ve crossed your Personal Tax Complexity Threshold (PTCT) — it’s different for everyone — it’s time to invite a skilled tax preparer into your life.
“Skilled” is the key word. There’s more riding on your choice of tax preparer than whether you get a refund: no matter who prepares your return, you are responsible for its accuracy, and any fines that result from mistakes.
Itemized tax prep costs an average of about $275, depending on where you live and how gnarly your state’s tax code is. If you’ve never worked with a tax pro, that can feel like a lot. But for those of us with a low PTCT and all the frustration, anguish, and errors that can go with it, a good pro is worth every penny! And if you’re a new homeowner, you could have some new tax breaks coming — a pro can help you make the most of them.
Possible free option: It might not always seem like it, but the IRS is actually there to help. The agency’s Volunteer Income Tax Assistance (VITA) program offers free, in-person basic tax return prep if you make $54,000 or less, have disabilities, or speak limited English.
Here are some basic principles to keep in mind when hiring a pro.
Tax preparer vs accountant
The first thing to know is that tax preparers and accountants aren’t the same thing. Accountants have a formal degree in their field, usually at least a bachelor’s, but still, they might not be tax experts. As for tax preparers, anyone who passes the IRS exam and has a preparer tax identification number (PTIN) can do a tax return for a client; no other training is required.
It’s probably fair to say that the ultimate tax preparer is a certified professional accountant (CPA) who is also trained in tax prep, but your needs don’t necessarily call for that expense. Learn more about the differences here.
You might be surprised to learn (we were) that in most states, tax preparers are unregulated. Indeed, the US Government Accountability Office did a small undercover study a few years ago in which almost all of the paid preparers made errors. That might say as much about the complexity of the tax code as it does about the tax prep profession, but still … Here are some links for understanding the world of tax preparers and screening out duds.
"Choose Your Tax Preparer Wisely”
Tips from the IRS. Including links to their own article explaining the various titles and credentials you’ll run across (dry as heck but informative), and to their searchable database of preparers who hold recognized credentials.
“10 Tips for Hiring a Tax Preparer”
From the American Institute of CPAs.
“11 Questions to Ask When Hiring a Tax Preparer”
Courtesy of Forbes.com.
6 red flags
Walk away from preparers who . . .
- Claim they’ll get you a bigger refund than the other guy
- Base their fee on a percentage of your refund
- Ask you to sign a blank tax form
- Don’t offer e-filing, which is the security standard today
- Imply IRS endorsement — the IRS doesn't do that
- Aren't available to you when tax season is over
9 reasons to hire a pro
Not sure if it's time to trade your tax prep software for a seasoned human being? Here are some tell-tale signs you may want to look to a professional for help.