As we wade into the 2022 tax season, you don’t want to delay looking for the right tax professional for you and your situation. You also don’t want to select the first preparer you find without doing the necessary research.
Preparing for tax season is crucial, especially if you have a tricky tax situation. There are several different tax professionals you can choose from to handle filing your taxes, but who should you pick? In this brief tax guide, we will go over how to choose tax preparation services and who you can reach out to for any questions or concerns.
Different Types of Tax Preparers
Before you choose tax preparation services, it helps to know the different options for tax preparers you can use. Certified public accounts (CPA), attorneys, and enrolled agents can help file your tax returns. They can also represent you on different matters such as collection issues, audits, and appeals.
Certified Public Accounts
Certified public accounts, also known as CPAs, have a college degree in business or accounting or the required work experience to work as a tax preparer. These individuals must go through rigorous schooling and the required state qualifying exams before they can work as CPAs.
CPAs focus mainly on accounting and handling tax matters, making them excellent candidates for complex tax preparation and planning. They have the best tax preparation experience. To keep compliant, they also must constantly enroll in continuing education programs to keep them up to date on the constant changes of tax laws.
If you have a complicated tax return, they are your best option. Keep in mind that they do charge more than a basic tax preparer.
Enrolled Agents (EA)
Enrolled agents are tax preparers approved by the IRS to represent taxpayers. To become a qualified enrolled agent, one must either pass an intensive two-day exam or have prior qualifying employment with the Internal Revenue Service. They also must pass a background check.
To maintain their enrolled agent status, an individual must complete a specific amount of continuing education credit hours in tax regulations and accounting methods. These representatives may specialize within a particular area of tax law, and they work either in a firm or independently.
Working with an EA is an excellent option if you have a complex tax situation, but it is very important to ensure that they have expertise in what you need.
Availability and fees of enrolled agents vary by location, but they generally charge less than a CPA would. If you need help with financial planning or tips on how you can reduce your taxes for the future, you can reach out to an enrolled agent.
Tax attorneys charge the highest fee when compared to other types of tax preparers you can use. If you have a specific tax preparation service budget, you may want to avoid reaching out to an attorney. Many taxpayers looking to legally shelter a part of their income typically reach out to attorneys.
Other reasons to hire a tax attorney:
- Estate planning
- Advice on municipal bonds
- Help with tax court issues
- Tax disputes
- Tax relief
On average, most people who work with tax attorneys spend between $5,000 to $10,000 or more to have an attorney file their taxes. Some attorneys also work on a contingency basis, meaning they receive a portion of your tax return.
Non-credentialed Tax Preparers
There are hundreds of thousands of people who are non-credentialed tax preparers in the U.S. These people only work during the tax season or part-time throughout other times of the year.
Non-credentialed tax preparers must have an active preparer tax ID number, also known as a PTIN, through the IRS.
In a large majority of the states, anyone can prepare tax returns for others without needing to get a license, take an exam, or comply with other government regulation rules. You are more than welcome to use these individuals, but working with someone with experience and proper licensing is highly recommended.
How to Choose Tax Preparation Services
Before you can choose the best tax preparation service for you, you must first identify your tax preparation needs. There are some people who have basic tax returns while others have more complicated tax situations, including investments and other deductions or credits.
Those who have basic tax returns can complete their returns online using other tax preparation software. Even if you have basic tax returns, reaching out to a reputable tax professional will not hurt. They could possibly find you credits and other deductions you may or may not be aware of.
Working With a CPA
Although you can file your taxes online, it is best to work with a CPA if you have a more complicated tax return or if you want more personalized advice. Many people like to build a relationship with a specific tax professional, so they reach out to CPAs.
Keep in mind that not all CPAs are the same. Many CPAs focus on audits, but others focus on other areas such as individual, real estate, or commercial taxes.
Check Your Network
Once you understand that type of service you need, you can start searching for the correct tax professional for you. One of the best ways to start is by reaching out to friends or family about who they may have used for taxes before. If you are a business owner, you can reach out to other business owners in your industry to find out who they worked with.
Looking online at the reviews of certain tax preparers can also help point you in the right direction. You can check out the Better Business Bureau or Google Reviews to learn more about a specific firm to see what their clients did or did not like about working with them.
As mentioned earlier, at the very least, someone who prepares taxes on your behalf must have a preparer tax identification number before filing tax returns with the IRS. However, it is important to note that almost anyone can receive a preparer tax identification number. With that said, there is no guarantee that someone with a preparer tax identification is good at their job.
You will usually see preparers working at tax preparation chains such as Liberty Tax or Jackson Hewitt during tax time. These preparers have a preparer tax identification number, which allows them to handle basic tax returns, but that is as far as they can go. They don’t have the necessary training to provide in-depth tax advice.
If you want someone who can help you get the most deductions on your return and help ensure that your return is done correctly, you may want to reach out to a reputable CPA. They have the proper licensing and training to support any type of tax situation.
Interview Your Potential Tax Preparer
Of course, online reviews can provide you with good information, but that may not be enough. Reaching out to a tax advisor and asking them questions that you have about their process is the best way to go.
This is also very helpful if your goal is to find someone you can partner with for a long time. When you work with someone who handles your taxes, you want to ensure that you have complete trust in them.
Tax time is a busy time of the year so when you reach out to a professional, be sure to be prepared with your questions. A five to ten-minute conversation should provide you with a reasonable amount of time to ask what you need.
Potential questions to ask your potential tax preparer:
- How do you secure data?
- How many returns do you complete each year?
- Are you insured?
- Are you licensed?
- Do you personally prepare your returns, or do you have staff that assists?
- Do you file returns electronically?
The IRS typically requires that tax preparers file returns electronically if they submit eleven or more tax returns each year. If you find someone who only files paper returns, they may only do taxes on a part-time basis. If you want to work with someone long-term, you may want to reconsider and work with a different professional.
When looking for the best tax preparer for your needs, it is important not to solely base your decision on price. It is best to compare quotes from several different tax professionals, especially if this is your first time preparing taxes for your business or yourself.
Some tax professionals charge an hourly rate, but it is not uncommon for them to charge their fees based on the schedules and forms filed.
On average, fees charged by professional tax firms for a 1040 form without any itemizations were about $220. With itemization, the average cost is around $323. Those who are self-employed paid an average of $192 to prepare their Schedule C form.
Check for Red Flags
As we mentioned earlier, anyone can receive a preparer tax identification number, so look out for those who aren’t legitimate. Many criminals out there will try to take your information and incorrectly file your taxes, leaving you devastated.
Promises of Amazing Returns
As with anything in life, if it sounds too good to be true, it probably is. Unless your family situation, income, or the tax laws change significantly, your tax return should be similar each year.
If anyone says they can get you thousands of dollars more than you usually get, don’t walk; run away from them. If you are unsure, reach out to a licensed tax professional from a reputable company to see if they believe you would receive what the other preparer claimed you would get.
Refuses to Sign the Return
The Internal Revenue Service requires all tax preparers to sign the tax return before sending it in for review. If you have someone else prepare your taxes for you, make sure that they sign the return. If they do not and you receive an audit resulting in fees and penalties, the blame will fall on you.
Missing Website or Temporary Office
While many legitimate tax preparers work out of their home offices, be careful of those who don’t seem to have any permanent business presence. Review their credentials and check to ensure that they have the proper licenses with the state. You want to make sure that they have some type of permanent business presence so that if you get audited or have questions about your return, you know where to find them.
Charging a Fee Based on Your Refund
Every legitimate tax professional will either charge you based on a flat fee or an hourly rate for their assistance preparing your taxes. If someone charges you a fee based on your estimated return, that is a huge red flag. Charging based on the return is a massive violation of professional ethics.
You Have a Terrible Feeling
Last but not least, don’t doubt or overlook your intuition. If something about a specific tax preparer does not sit right with you, move on to someone else. For example, if a tax preparer does not seem to understand your questions or your current tax situation, that is a sure sign that they are not the right person to complete your tax return.
Reporting Abusive Tax Preparers
If you ever come across an abusive tax preparer who is not honest and you suspect that they are fraudulent, you can report them to the IRS. The IRS has a form that you can fill out called “Complaint: Tax Return Preparer.” If you believe that someone changed your return or filed it without your -permission, you can file IRS Form 14157-A Return Preparer Fraud.
Are Tax Preparers Worth It?
You may only need a free filing service if you have a relatively simple tax return. For example, if you are a single filer with one W-2 and no deductions or itemizations, you may not need to speak with a tax advisor.
It wouldn’t hurt to reach out to one to see if you have any credits or deductions, but for the most part, you can file online. If you run a business or just want to speak with someone about your tax situation, speaking to a professional is worth it.
File Your Taxes Securely Today
Just like you, many Americans often wonder how to choose tax preparation services that work best for their tax situations. Some of us aren’t even sure of what forms to use or what deductions or credits are available for us.
If this sounds like you, Continue Reading our blogs to learn more about tax, small business and personal finance topics.