We’re at that time of the year again, where everyone is trying to get the most of their tax refunds. Many people are doing it on their own, and I wrote a couple of articles on how to choose the tax preparation software best for you.
For those of you doing it themselves, there’s an additional benefit this year: You can get an additional Amazon credit of 10% of your refund when using TurboTax Deluxe or TurboTax Premier bought through Amazon.
But if you’re looking to hire a professional to do your taxes – I’ve got some tips for you.
1. First and foremost: anyone giving you a tax advice must be properly licensed. If the advice is not given with regard to filling the tax forms, only people who hold the EA (Enrolled Agent) credentials from the IRS, or people licensed as CPA/PA (Certified Public Accountants) or an Attorney by your State are allowed to give you a tax advice. No-one else. Not even a tax preparer in your neighborhood H&R Block store (unless they’re licensed accordingly). You can verify the status and the credentials of the professional with your State (for CPA/Attorney) or the IRS (for EAs).
2. Some states also license people who prepare taxes. For example in California, such a person should have a CRTP designation, unless he or she is also a EA/CPA/Attorney – those are allowed to prepare taxes as part of their legal ability to provide tax advice in any matter. Employing a licensed/registered tax preparer ensures the person passed a certain process of ensuring his knowledge in tax matters. However, not all States license and regulate tax preparers, in fact – most don’t.
3. Make sure the preparer uses a professional software. It is illegal for a paid preparer to use “retail” personal-use software such as TurboTax or H&R Block At Home.
4. Make sure your preparer signs the return he/she prepared for you, in the designated area for the paid preparer signature. Also, make sure that the preparer’s PTIN (IRS identification number for all paid preparers, including EAs, CPAs and Attorneys) appears next to the preparer signature. The preparer signature designated area is at the bottom of the second page of the main form for your tax return – form 1040.
5. Make sure your return is e-filed. While it is not legally required to file your return electronically – it is beneficial for you: you save the money on sending it via certified mail, you save the paper needed to print it, and you save the time needed for the IRS to scan it, process it, and issue you the refund you’re entitled to. It also reduces the chances of identity theft somewhat, since the IRS gets your information faster and without a danger of someone snooping into the envelope on the way.
Paid preparers preparing more than 10 returns a year are required to e-file the returns they prepare. You will sign an authorization form, and will receive a confirmation that the return has been filed and accepted by the IRS, from your preparer. You can verify that yourself now using this system.
6. When selecting a preparer, check for reviews and references. Being licensed is not enough, as to pass the licensing requirements (even for the IRS EA designation, which is all about tax), the candidates need to be proficient only in the most basic applications of the tax law. Your average tax preparer will probably not know anything about international taxation and tax treaties (for those of you who are international students, H1B/L1 employees or US citizens living abroad). Not all the tax preparers are familiar with corporate taxation (for those of you working as self-employed and want to explore options of incorporating as a S-Corp or C-Corp). In short, check with people in a situation similar to yours if the preparer you’re thinking of is capable of doing the job.
7. Check the preparer’s history. You can find information about the person’s license at the appropriate regulating agency (IRS or the State), and see how long he/she has been in business. Check whether they were working in a larger firm were they could have been exposed to more complex and challenging cases, and see if there were any complaints and negative reviews against them, or if they’ve been cited by their oversight agencies.
8. Verify that your tax preparer will be there for you after the tax season is over. Many people prepare taxes as their hobby/second job during the tax season, but will not be available for you after that, until the next season starts. Sometimes its OK, especially if your tax situation is standard and no special tax advice or treatment is needed (for example – you’re a W2 employee without any unusual circumstances). But for some the ability to call their tax adviser throughout the year is critical.
This also related to the point #1 above – since issues arising during the year are not necessarily related to the tax return preparation, if this is relevant to you, you’d probably want your tax preparer to be a licensed tax adviser (EA/CPA/Attorney).
9. Make sure your tax preparer can deal with issues related to the tax return. For example – make sure the tax preparer will write his/her information as a contact person on the form 1040, and will be available to respond and deal with any IRS questions or audits. Only EA/CPA/Attorney can represent you in front of the IRS/State, so if your tax preparer is not licensed as such – ask who would be the professional representing you in case of an audit. Many “un-enrolled” (not licensed as EA/CPA/Attorney) preparers collaborate with the “enrolled” ones on the matter for their clients – check who that “enrolled” person is.
10. Get a copy of the return prepared for you, and go through it before signing and sending/e-filing it. Make sure you understand every number, and have your preparer explain to you everything you don’t understand. Make sure you agree to everything. The tax return is your responsibility, even if you paid someone else to prepare it. Remember that.
Happy Tax Season!
Your Little Advisor.