INDIANA – It is time again to file our taxes. For many people, major life changes, business ownership, or simply a lack of knowledge about the ever-changing tax laws make finding a trustworthy tax preparer a good idea. That said, not all tax preparers have the same level of experience and training. Here are tips for finding someone you can trust with your finances and sensitive personal information.
Which type of tax preparer is right for you? First, it’s important to understand the different types of tax preparers and their qualifications. Only enrolled agents, certified public accounts, and attorneys may represent their clients on audits, collection issues, and appeals to the IRS.
Enrolled Agent (EA): An EA is a tax preparer approved by the IRS to represent taxpayers. An EA must either have prior qualifying employment with the IRS or pass an intensive two-day exam on federal taxation and complete a background check. To maintain EA status, they must complete several credit hours of continuing education in accounting methods and tax regulations each year. An EA may work independently or as part of a firm and specialize in specific areas of tax law.
An EA is a good option for a more complex tax situation. However, you’ll want to make sure their area of expertise applies to your situation. Fees and availability may vary, but you can expect an EA to charge less than a CPA. An EA is also qualified to help you with financial planning and give you tips that could help you reduce your taxes in the future.
Certified Public Accountants (CPA): CPAs have a college degree (or the equivalent in work experience). They are licensed after passing a state professional qualifying exam. They are highly skilled in accounting. This makes them good candidates for complex tax planning and preparation if they are experienced in handling tax matters and enrolled in continuing education programs that keep them abreast of the constant changes to tax laws. If your return is quite complex, a CPA may be your best choice for tax preparation, but they will charge much more than basic tax preparers.
Attorneys: Tax attorneys often charge the highest fees as tax preparers. Hiring a tax attorney is a good option for taxpayers looking to shelter part of their income legally or for those needing specialized advice on municipal bonds, estate planning, and the like.
Non-credentialed tax preparers: There are about 700,000 people who work as non-credentialed tax preparers in the United States. They often work part-time or only during the tax season. These preparers must have an active preparer tax identification number (PTIN) through the IRS, but beyond that, regulating tax preparers is done at the state level. In most states, anyone can prepare tax returns for others without taking an exam, getting a license, or complying with other government regulations.
Most tax preparers are legitimate and competent, but keep in mind that they may be working off of their research and experience without a national license requirement. Because of this, it is important you conduct a thorough interview with the tax preparer before you hire them.
How to choose the right tax preparer: Choosing the right tax preparer for you will depend on the complexity of your tax situation. After you’ve decided what qualifications your tax preparer needs, the following tips will help you choose someone trustworthy and competent:
- Review the tax preparer’s credentials. EAs, CPAs, and tax attorneys are qualified to represent their clients to the IRS on all matters. Other preparers can help you with forms and fundamental issues but cannot represent you in case of an audit. Don’t be afraid to ask about these or other qualifications before you hire someone.
- Be wary of spectacular promises. If a tax preparer promises you larger refunds than the competition, this is a red flag. Many such tax preparers base their fees on the amount of your return and may be likely to use shady tax preparation tactics. In addition, it’s wise to avoid tax preparers who offer “refund anticipation loans” as you’ll probably lose a large percentage of your return to commission fees.
- Get referrals from friends and family. One of the best ways to find a trustworthy tax preparer is to ask your loved ones for recommendations. Once you have a few options, check BBB.org, carefully examining other consumers’ reviews or complaint details. This will give you a clear view of what you can expect.
- Think about availability. If the IRS finds errors in your tax forms or decides to perform an audit, will your tax preparer be available to help you with the details? Find out whether you can contact the tax preparer all year or only during tax season.
- Ask about fees ahead of time. Before you agree to any services, read the contracts carefully and understand how much the tax preparer charges for their services. Ask about extra fees for e-filing state, federal, and local returns and fees for any unexpected complications.
- If things don’t add up, find someone else. If a tax preparer can’t verify their credentials, has a record of bad reviews from previous clients, or their business practices don’t seem convincing, don’t do business with them. Remember that if you hire them, this individual will handle your sensitive personal information – information you need to keep safe from corrupt or fraudulent tax preparers.
For more information and to learn how to protect yourself, Google “BBB 10 Steps to Avoid Scams”. If you spot a scam, whether you have lost money or not, report it to BBB’s Scam Tracker at BBB.org/ScamTracker and the FTC at ReportFraud.ftc.gov. Your story can help protect consumers from similar scams.
