Everybody's favorite time of year — tax season — is here again! To make this year's lead-up at least a little less stressful, consider these tips on how to choose a competent preparer who will provide you peace of mind and perhaps even a decent refund.
1. Research Their Qualifications and Credentials
You have to begin somewhere in your search for a professional tax preparer who will help you file your returns accurately and efficiently — and that's by researching your candidate's qualifications and credentials.
For starters, says Steven V. Melnik, associate professor of tax law with the Department of Accountancy in the Zicklin School of Business at Baruch College, tax preparers must have an IRS-required Preparer Tax Identification Number (PTIN).
"Make sure your preparer includes their PTIN in the section labeled 'Paid Preparer Information' on your return," he advises. "Research the preparer's history to check for derogatory remarks, disciplinary actions, or any sanctions for fraudulent returns, and select someone who has prepared returns on a full-time basis for at least five years, has audit experience, and works with clients who are similar in needs."
As an additional step, you also should research your candidates' names on the IRS Directory of Federal Tax Return Preparers With Credentials and Select Qualifications, according to Georgia-based tax professional Yvette D. Best.
2. Ask for References
Because your tax preparer is handling your very sensitive and important financial information, it's essential to ask for references that can vouch for their work. Anybody can tell you they're the best in the biz, but it's wise to hear it from secondary sources so you're confident that you're choosing the right person for the job.
"A respectable tax preparer should provide you with referrals from past clients to confirm their reputation," Melnik says. "Ask those clients if their returns were audited as a result of any tax preparer errors."
3. Consider Your Circumstances
Not all tax returns are created equal, and as such you should choose a preparer who is adequately educated on how to properly file yours.
"If you're a W-2 employee who has only one income stream, for instance, it may not even be necessary to get outside help," says Jessie Seaman, a managing licensed tax professional at Tax Defense Network. "Online tax software has become intuitive and simple to use, so you may find this a preferable option. Alternatively, if you're a contractor or run your own business, it's in your best interest to find a tax professional that you can rely on long term. This tax professional should have a history of helping clients who have circumstances similar to your own.”
John O. McManus, a top AV-rated estate-planning attorney and founding principal of McManus & Associates, adds that a tax preparer should have the knowledge and expertise to understand the complete picture of your finances. It's important that income tax planning be coordinated with retirement and financial planning efforts, as well as asset preservation strategies, if these components are relevant to your returns.
"Many people don't realize that they may be able to tap an estate planning attorney or other financial advisor for personal income tax return preparation, in order to bring together their income tax planning with their wealth management plan as a whole," McManus explains. "For example, income tax on the capital gains from the sale of an asset could be well over 30%, including federal, state, local impositions, and the Medicare surtax. For stock positions, business interests, real estate, and alternative investments that have appreciated significantly, top-notch income tax planning becomes critical.
While income tax planning focuses on your earnings, using an estate planning attorney or financial advisor for income tax preparation also helps you monitor the tax laws and the implications of potential changes, so you can address them in your overall financial planning."
4. Inquire About All Associated Fees Upfront
The last thing you want during an already stressful tax season — especially one where you may not receive a refund and instead owe money — is to be blindsided by fees on the backend of the preparation. To avoid this unwanted surprise, ask about all associated fees upfront. Most preparers offer services at a flat rate per return, Melnik says. As such, you want to avoid preparers who require a percentage of your refund as payment, since there's a chance they could inflate it to receive a larger fee — and that spells trouble all around.
5. Ensure That Electronic Filing Is Available
Electronic filing is the easy and quickest way to file your return (and get your refund) these days. But it's not just the convenience that makes e-filing attractive. It also helps separate the true tax professionals from the amateurs.
"The IRS requires that paid preparers who prepare more than 10 returns per year must file electronically, unless the client elects to file a paper return," according to Melnik.
Take a pass if your preparer doesn't offer electronic filing. It shows lack of experience and your return may be more susceptible to inaccuracies.
6. Choose a Preparer Who Is Accessible
Another important aspect of choosing the right tax preparer for you is having someone who's there when you need him or her. You never know what kind of issues will pop up before, during, and even after your taxes are filed, and you want someone on your side who will addresses whatever issues you have promptly.
Melnik advises, "Never retain a preparer who you are not able to contact when needed. Reputable tax preparers will try to respond to your inquiries within a stated reasonable time — such as within 24 hours or 48 hours. Sometimes you may need to contact your preparer after the tax-filing deadline. Your preparer should be available year round or have a qualified backup to handle an emergency."
Beware of Fraudulent Preparers
Not everyone is the best at their job — including tax "professionals" — and sometimes there are even bad apples in the mix. The tips above on how to choose a tax preparer wisely are critical in picking the right person for your situation, but just as important is being aware of the red flags that come with this territory and how to avoid them so you're not taken for a proverbial ride by a fraudulent preparer.
"First, be wary of anyone who contacts you about handling your taxes," Seaman says. "Also, if you call a potential preparer and learn that he or she will require a percentage of your tax return, as opposed to a flat fee, you don't want to use them. Further, if the person promises an inflated refund because of loopholes or vague tax tricks, you need to keep looking."
Additionally, Melnik details a few more common warning signs of a fraudulent preparer:
The preparer asks what amount of refund you would like to receive. A tax preparer cannot inform you of your refund prior to preparing the tax return. That's an indication that your tax preparer will prepare a fraudulent tax return.
He or she asks you to sign a blank return. Never sign a blank return under any circumstances. Do not sign a return without reviewing the return. Be sure to ask questions about any items that you find may be questionable.
- You're asked to deposit your refund into their account. A reputable tax preparer will not require you to deposit your refund into their account absent a valid reason that should be disclosed to you, nor will they ask for a percentage of your refund. If you are asked to do this by your tax preparer, it is likely that you will be the victim of fraud.