Enlisting a professional to prepare your taxes can help ensure that your return is completed in the best possible way—and potentially reduce your tax bill. But finding a tax preparer who best fits for your needs can be a challenge. Only four states—California, Maryland, New York and Oregon—hold paid tax preparers to a mandatory standard, meaning that in most states preparers can operate without any license or training. A few others—Connecticut, Illinois and Nevada—are moving in this direction. And even if someone is well-trained, you need to determine whether he or she is experienced, skillful and cost-conscious enough to be a good choice.
Here are important questions to ask of a tax preparer you’re considering hiring…
- What is your preparer tax ID number? By law, anyone paid to prepare a federal tax return must have a valid preparer tax identification number (PTIN), which indicates that he/she is registered with the IRS. If a preparer doesn’t have this number, walk away. Even if he/she does, keep in mind that a valid PTIN only legally allows someone to prepare your tax return. It does not signify any kind of expertise.
- Are you a certified public accountant (CPA), attorney (JD) or enrolled agent (EA) with an active certification or license? Any of these designations not only denotes that the preparer is a licensed professional with formal training, but also gives you a means of recourse if the preparer acts improperly. An attorney could be disbarred…a CPA could lose his accounting license…and an EA could be suspended from practice if he is found to have filed a fraudulent return on your behalf. If the preparer doesn’t have one of these designations, look for help elsewhere.
- How long have you been preparing taxes professionally? Look for someone with at least three years’ experience and/or 100 returns filed. Also, consider the kinds of returns someone has prepared. If you own a business, for example, a young CPA with three years of experience and several hundred business tax returns under his or her belt is a better choice than a CPA with 30 years of tax experience who has never prepared one on behalf of a business owner.
- How many returns do you prepare each year for clients like me? No two tax situations are exactly the same. But if you have special circumstances (you’re a small business owner or you have income and losses from rental income, for example), you want a preparer who is familiar with situations like yours and can tell you about the forms and documentation needed to complete your return…as well as deductions and credits that similar clients typically use.
- How will you be filing my return? A tax preparer who isn’t planning to file your tax return electronically either doesn’t have many clients or isn’t operating in accordance with the law. Tax preparers who expect to file 11 or more returns in one calendar year are required to e-file. If a tax preparer expects to file fewer than 11 returns, it’s not necessarily a red flag if he plans to submit your return by mail. But it’s worth asking why he chooses to do so—especially given that e-filing provides for receipt acknowledgement, more accurate returns and faster refunds.
- How will you sign my return? By law, a compensated tax preparer must declare himself as such on your return. If a preparer has any hesitation to do so, that should be the end of your discussion.
- What happens if I get audited? A preparer who declares, “I guarantee you won’t get audited” is making an empty promise. Even if he’s handled your return properly, there’s still a chance of an audit. Request a written guarantee that if an audit is performed, the preparer assumes responsibility for any penalties assessed to you due to mistakes he made on the return…as well as interest owed on late payments due to any mistakes.
- How do you charge for your work? Most tax preparers charge for a return either by schedule (a certain payment for each form required to complete your return) or at an hourly rate. Preparers who charge by schedule should provide a price sheet that lays out the fixed cost for each form such as Schedule A for filers with itemized deductions…Schedule D for people who need to report capital gains and losses…etc. For preparers who charge by the hour, ask for a total estimated cost based on the complexity of your situation. Examples of typical industry pricing based on hourly charges recently included $270 for a Form 1040 with itemized deductions and $488 for an itemized 1040 with Schedule C business income. Adding a corporate or partnership return with generally add about $600 to $800 to the mix. If you’re quoted a fee that’s above that range, ask where that number is coming from. Never agree to a fee based on a percentage of your refund. That formula gives preparers an incentive to be more aggressive in including deductions to take and credits to claim, which could put you at greater risk of being audited.