What To Look For When You Choose A Tax Professional?

For most individuals, the 1040EZ is the first tax form you’d ever fill out. For example, if you are a young adult with a part-time job that files tax returns at the end of the year. In this case, you likely have a straightforward and simple tax situation. As long as you have no real estate assets, no tax shelters and no foreign income, only the most basic information is requested on the 1040EZ Form to determine whether any money is owed or refunded. If you find yourself in a similar situation, it’s most you would not need to hire someone to do your taxes.

But if that’s not you and you find that yourself has grown financially by the likes of; a home, a spouse, adding investments, a second income, start up a business, etc., you probably would want to use a tax professional. The more complicated your tax returns get, the more likely you’ll want to hire a professional to help. Even if you would rather do it yourself, it’s still a good idea to have a professional do your tax returns at least every three or four years. This is because a tax preparer might find deductions you could have used in those previous years, giving you the opportunity to amend those returns and get more money back while you still have a chance!

An added benefit is a tax professional can also remove the stress associated with preparing your own tax return allowing you to focus on other activities. The tax professional can also defend your tax position in case you get audited by the IRS.

Filing your taxes is not easy as it looks and finding someone to help you could be even more difficult. You’ll want to select wisely because even when your return is prepared by someone else, you’re still financially and legally responsible for everything on it.

Before you start your hunt, you might be wondering about all the different kinds of tax professionals out there or simpler yet, who can even do your taxes. Fundamentally, anyone could call themselves a tax preparer and file your return for you. Any tax professional may prepare federal tax returns as long as they have an IRS Preparer Tax Identification Number (PTIN). Though, there are different levels of education, skill, and expertise. A vital difference in the types of practitioners is “representation rights”.

What is representation?

Representation, also known as “Practice Before the IRS”, covers all matters relating to any of the following:

• Communicating with the IRS on behalf of a taxpayer concerning the taxpayer’s privileges, rights or liabilities under regulations and laws administered by the IRS.
• Representing a taxpayer at conferences, meetings or hearings with the IRS.
• Preparing, filing or submitting documents, or advising on the preparation, filing or submission of documents. This includes tax returns, with the IRS on behalf of a taxpayer.
• Providing a client with written tax advice on one or more Federal matters.

With this in mind, please note that if you are selected for an audit or receive an IRS notice, then one of your rights as a taxpayer is to have unlimited representation by a credentialed tax practitioner to act on your behalf.

What are representation rights?

Representation rights, also known as practice rights, drop into two categories:

• Unlimited Representation
• Limited Representation

UNLIMITED representation rights

This permits the practitioner to represent taxpayers before the IRS on any tax matter including payment/collection issues, audits, and appeals. It does not matter who prepared the return. The following credential types have unlimited representation rights: enrolled agents, certified public accountants, and tax attorneys.

Enrolled agents

An enrolled agent or EA is a tax professional licensed by the IRS. Enrolled agents are subject to a suitability check and must pass a three-part Special Enrollment Examination, which is a comprehensive exam that requires them to demonstrate proficiency in federal tax planning, individual and business tax return preparation, and representation.

Enrolled agent status is the highest credential the IRS awards. They must complete 72 hours of continuing education every 3 years to maintain their status. The benefit of using an enrolled agent is that these people live and breathe taxes. Many enrolled agents specialize in specific tax areas, so ask about an agent’s area of expertise before you hire him or her.

Certified Public Accountants

A certified public accountant or CPAs are accountants who have passed qualifying state exams and met specific experience and education requirements for that title. In addition, CPAs must comply with ethical requirements established by their respective boards of accountancy and complete specified levels of continuing education in order to maintain an active CPA license. Not all CPAs are experts on income taxes matters.

A CPA can help you create an overall tax plan and guide you through complex financial situations. A CPA may be your best choice if you’ve recently opened or closed a business, been divorced, retired, or had any other lifestyle changes that significantly affected your finances. Like an enrolled agent, a CPA can represent you before the IRS.

Tax attorneys

Licensed by state courts, the District of Columbia or their designees, such as the state bar. A tax attorney doesn’t necessarily specialize in filing tax returns. Generally, they have earned a degree in law and passed a bar exam. Attorneys generally have on-going continuing education and professional character standards.

Although this is the most expensive choice, you will want a tax attorney’s services when you encounter a legal issue regarding your taxes. In less extreme situations, an attorney can help you create legal tax shelters or work through more complex tax concerns, such as corporate taxes.

Tax attorneys are best for handling corporate matters or complex tax disputes, rather than preparing individual returns. So be sure the one you choose is familiar with your particular needs.

LIMITED representation rights:

Those with limited representation rights may only represent clients whose returns they prepared and signed, but only before revenue agents, customer service representatives and similar IRS employees, including the Taxpayer Advocate Service. They are not allowed to represent clients whose returns they did not prepare. In addition. they may not represent a client regarding appeals or collection issues even if they prepared the return. Effective January 1, 2016, only Annual Filing Season Program (AFSP) participants have limited practice rights. Tax return preparers with limited representation rights include IRS voluntary education program and PTIN holders.

IRS voluntary education program

This voluntary program recognizes the efforts of return preparers who are usually not attorneys, certified public accountants, or enrolled agents. For years, anyone who wanted to prepare taxes could simply open up their own office or business as a professional and start filling out tax returns for a fee. Such procedures include accountants, mom and pop tax preparation firms and storefronts that pop up in January and close in April. It was designed to inspire education and filing season readiness.

The voluntary program requires 18 hours of continuing education, including a six-hour federal tax law refresher course and test. The IRS issues an AFSP Record of Completion to return preparers who obtain a certain number of continuing education hours in preparation for a specific tax year.

PTIN Holders

Tax return preparers who have an active preparer tax identification number, but no professional credentials and do not participate in the AFSP, are authorized to prepare tax returns. Starting January 1, 2016, this is the only authority they have. They have no authority to represent clients before the IRS.

However, it is the taxpayer’s responsibility to check out any tax professional, with or without outside credentials. Be sure to ask any potential tax preparer for assurances and references that the office will be open after your return is filed in case you or the IRS has follow-up questions.

 

Finding the right tax professional for you

Once you’ve gotten few names of possible tax professionals, it’s time to make sure this person will do a good job and not steal from you.

It is imperative to be sure the tax preparer has experience preparing tax forms for people in your particular situation. Not all tax preparers understand the non-resident tax forms. Taxpayers are responsible for all the information on their income tax return. That’s true across the board, no matter who prepares the return.

The IRS has found that each year taxpayers take a financial hit because they choose preparers who mislead them, commit fraud in their name, or make off with their refund money. Do not fall into the same trap others do!

Here are what to look for when you choose a tax professional

Check the Preparer’s Qualifications

Anyone who prepares tax returns for compensation is required by the IRS to have a preparer tax identification number or PTIN. Without one, he or she is not legally allowed to do your taxes.

You can use this link for the IRS’s Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to find a preparer in your area with the level of expertise you require, confirm his or her credentials, and make sure he or she has an up-to-date PTIN. This tool helps taxpayers find a tax return preparer with the qualifications that they prefer. The Directory is a searchable and sortable listing of preparers with a credentials or filing season qualifications. It includes the name, city, state and zip code of:

• Attorneys.
• Certified Public Accountants.
• Enrolled Agents.
• Enrolled Actuaries.
• Enrolled Retirement Plan Agents.
• Annual Filing Season Program participants.

The IRS also suggests checking for disciplinary actions and the status of any credentialed preparer’s license. You can find both, if your preparer is a CPA, through the National Association of State Boards of Accountancy’s CPAverify tool. If you are using an attorney, contact the State Bar Association asking where they practice. For enrolled agents, use this form from the IRS. If the professional sells securities, check his or her credentials at the Securities and Exchange Commission, the FINRA (use the “BrokerCheck” on the homepage), and/or the state’s securities agency.

The IRS never recommends or endorses any single type of preparer or individual. No tax preparer can legally use the IRS’s name or initials within his or her own name, or use the IRS or Treasury Department seal on advertisements.

Perform a background check

It’s not all about the money, though. Once you decide what kind of professional you need, do a meet-and-greet. Check to see if your professional has a record of complaints at any organizations they’ve worked with before.

Forbes recently reported schemes where CPAs altered clients’ tax returns without their knowledge to illegally get refunds. To avoid these kinds of criminals, the IRS recommends you check a company’s background at the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Enrollment for enrolled agents. Also, be on alert for common red flags, including the boasting that a preparer can get you a larger refund than the competition, or a promise of a certain refund without having seen any of your records or previous tax returns.

Look for compatibility

Besides a reputable, qualified tax professional, you also want someone who’s not only a good fit but also makes you feel comfortable. You could ask the references what working with the preparer is like and in your interview with the preparer try to get a feel for his or her style and philosophy.

Similarly, find out what the preparer spends most of his or her time doing. A CPA who specializes in taxes for large or medium size businesses may be very knowledgeable, but perhaps less fitting for you than the CPA who spends 60% of the time doing taxes for home businesses and individuals.

Some questions you might ask include:

• Who will prepare my tax return and where will it be prepared?
• How can I contact this person?
• Can I contact you after the April due date if necessary?
• What other services do you offer (if you need, for example, help with financial planning)?
• What records and receipts do you need from me?
• Who will sign my return?
• When will I receive a copy of my return?
• What happens if my return is audited?
• If you are a non-resident for tax purposes, ask how many Forms 1040NR the preparer does each year.
• If you are in F or J immigration status, ask if the preparer is familiar with the special rules that apply to F and J visa holders, and ask how many returns s/he does for F and J visa holders each year.
• If you will be required to file a “dual status” tax return (you were a tax resident for part of the year), ask how many dual statuses returns the preparer does each year.

Don’t be afraid to call around and ask questions and ask for quotes. Hiring someone to handle your finances is a big deal and it’s not exactly cheap, so don’t rush it.

Choosing a good tax preparer does require a little bit of research and effort on your part but it’s worth it. Just as you stick with other professionals from year to year, the objective here isn’t just to fill out a form but to create a relationship. A good tax preparer won’t mind answering your questions.

Find out about their service fees.

Genuine tax preparers often charge by the hour, so if you come across one whose fee is based on the size of your refund or who says he or she can get you a bigger refund than the next guy, those are red flags.

The IRS estimates that taxpayers spend an average of 13 hours on everything from gathering paperwork and reading up on tax laws to completing and submitting a return.

The average fee at the national tax service firms H&R Block and Liberty Tax Service is $147 per return and $191 per return, respectively, according to the firms’ annual reports. Well, don’t write a check just yet. Extra services can add up. Accountants charge additional hourly fees of $100 or more for tax services and estate and financial planning advice.

Costs can vary widely by region; taxpayers on the West Coast pay $240 for an itemized 1040 compared to an average of $165 for states in the Deep South. And it’s not uncommon for big-city firms to charge base fees in excess of $750.

Other factors — like the complexity of your return (how many forms and schedules are submitted), the state of your paperwork (are your documents organized or crammed into a shoebox?), and your tax professional’s expertise and experience — can also affect your tax prep tab.

Tax preparers should want to see your records and receipts, as well as ask questions about your income and finances. Any preparer who files your return using your last pay stub instead of your W-2 is not only breaking IRS rules, it is also illegal.

When inquiring about a preparer’s services and fees, don’t give them tax documents, Social Security numbers, and other information. Some preparers have improperly used this information to file returns without the taxpayer’s permission. Under no circumstances should all or part of your refund be directly deposited into a preparer’s bank account!

You may qualify for free IRS-provided assistance if you are in the military, earn $54,000 or less, have a disability, are over age 60, or know a limited amount of English. If you earn less than $62,000, you can also use free tax-prep software to complete your return.

If the IRS is auditing you, tax preparers charge an average of $144 per hour to handle it, according to the National Society of Accountants.

Reconsider those who don’t e-file

Taxpayers should make sure their preparer offers IRS e-file. Paid preparers who do taxes for more than 10 clients generally must file electronically via the IRS’ e-file system. If your tax preparer doesn’t offer e-file, it may be a sign the person isn’t doing as much tax prep as you thought.

What is E-file?

• E-file is a system that translates and transmits completed tax returns in a format IRS computers can accept. Don’t confuse it with the tax software company Efile.com, which is headquartered in Fairfax, Virginia.
• Only tax software companies and tax professionals can access the IRS’ e-file system, which means you’ll need to go through one of them if you want to file taxes online. Once in the e-file system, the returns funnel through authorized entities the IRS calls “transmitters,” which have special software and a direct line to IRS computers.
• E-filing virtually guarantees you’ll get your tax refund faster because you don’t have to wait for the U.S. Postal Service to deliver your paper return to the IRS. Old-school paper returns are typically processed more slowly, too, with refunds appearing in six to eight weeks. However, the IRS issues most refunds in less than 21 days, so the fastest way to get your money is to combine e-file with direct deposit into your bank account. That way, you won’t have to wait for a paper check to make its way back to you.
• After you e-file, the IRS notifies you when it receives your return, when it approves your return and when it sends your refund.

If he or she is suggesting you direct deposit your refund into an account that isn’t yours, that preparer might tell you that this is more convenient or that your refund will arrive faster, but it is prohibited by the IRS, for good reason. It’s the easiest way to lose your refund completely.

Make Sure the Preparer is Available

Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case of questions arise.

Availability is also critical. Even after the filing season is over and your tax return is done, a good tax preparer will take your call, respond to your email, or welcome you for a visit.

 

In Summary, it is important to remember that because you are legally responsible for the information on your return, you still need to carefully look over the preparer’s work before signing and filing. By law, paid preparers must sign returns and include their PTIN. Be sure you get a copy of your return, and make note of how you can reach your preparer after this year’s April 18 filing deadline in case you run into a problem.

Don’t be afraid to ask your preparer questions if something seems wrong or blurry. The IRS recommends to never go with a preparer who asks you to sign a blank tax form or who refuses to submit your return electronically through IRS e-file. Keep these in mind during your process and you should be fine. Good Luck!