Finding the right person to prepare your income tax return is very important, but often, not enough care is put into this vital financial decision. With software, like TurboTax, anyone can prepare income tax returns, including beginners with no experience. When you consider the likelihood of mistakes and audit risks, is this the best choice for you?
There are various types of tax return preparers, including certified public accountants, enrolled agents, and others who have no professional certification. You expect your tax preparer to be qualified, experienced, and to complete your tax return accurately. You trust them with your personal and private financial information, so you need to be sure you have chosen the right tax preparer.
Should you do it yourself with tax software like TurboTax or an online service?
Learning how to prepare your own tax return is always a good idea. However, with constantly changing and complex tax laws, this option is best only if you have a basic tax return. If your tax return is complicated, the savings diminish by doing it yourself. Several hours would be needed to learn how to use the software and complete the software’s long interview process. Ultimately, your tax return can still have mistakes. Remember that the cost and/or complexity of tax software increases every year.
Should you have a friend or family member prepare your taxes?
Perhaps, you have a trusted friend or family member familiar with preparing taxes and will prepare your tax return. Considering the IRS Tax Code is 74,608 pages, a person without training cannot be expected to provide a thorough analysis of your tax situation. This would be a good option, only if you have a basic tax return. By law, anyone who accepts money for income tax preparation services must have an IRS issued identification number (PTIN) and sign your tax return (paper or electronic).
How about going to H&R Block or Jackson Hewitt?
If your tax return is somewhat complicated, a good entry-level option is to use a tax services franchise. These companies do a great job with advertising, but these costs are naturally passed on to the consumer. Although their preparers are not necessarily CPAs or accountants, they train their preparers on current tax laws. Their tax software is good and will check for mistakes and prevent common errors.
The main drawback is that almost everyone who works for these places is a part-time seasonal employee, and income taxes, typically, are not their primary line of work. They may also not be available to answer your questions after tax season. Regarding pricing, tax franchises often charge by the number of forms used, and it can be expensive. If you go with this option, request a preparer who has at least five years of experience.
How about hiring a non-credentialed Accountant?
Not all accountants are credentialed, and not all accountants are tax preparers. Many avoid taxes, altogether. If you find a non-credentialed accountant to prepare your tax return, make sure they are experienced with income taxes and provide the services as a part of their main business. Also, ask why they are not credentialed.
Enrolled Agent and Certified Public Accountant
The last two options are your best choice in choosing the right tax preparer for your tax preparation and tax resolution issues. The IRS recognizes both, and both are qualified to represent you before the IRS. An Enrolled Agent must pass a test covering individual and business taxes. They must follow ethical standards and complete 72 hours of continuing education every three years.
A Certified Public Accountant (CPA) must pass a thorough four-part accounting examination and be certified by the state. They must complete a study in accounting at a college or university and meet experience requirements. In addition, CPAs must meet ethical standards and complete 120 hours of continuing education every three years to maintain an active license.
CPAs and EAs have unlimited representation rights before the IRS, and both may represent their clients on any matters, including audits, payment/collection issues, and appeals. Due to the educational requirements and testing, CPAs would be the better option.
Most credentialed tax preparers provide outstanding and professional tax services. Anyone who prepares tax returns for compensation must have an IRS issued preparer tax identification number to prepare federal tax returns legally. Make sure your paid tax preparer has one, enters it on your return, and signs the return filed with the IRS.
The IRS advises you choose your tax return preparer wisely. You, the taxpayer, are responsible for the information reported on your tax return. The best way to avoid an IRS audit is to be certain your tax return is prepared correctly. You should not pay any more in taxes than owed, and choosing the right tax preparer as outlined above should provide the best results.
Avoid tax preparers who promise large refunds and those with fees based on a percentage of the refund. Steer clear of refund anticipation loans, which often charge a high commission. Be sure your preparer offers electronic filing or e-file. Paid preparers with over 10 clients, generally, must file electronically. The IRS website has a directory to help you find a qualified preparer in your area. You can also check the professional organizations your tax preparer belongs to.
Isn’t it time you had an experienced tax professional on your side? Mr. Noel B. Lorenzana is an Illinois Registered Certified Public Accountant with over 20 years of experience, dedicated to providing outstanding tax and accounting services to individuals and small businesses in the Chicagoland area. Contact him to find out how he can help you reduce your taxes.
The information presented in the above article is general in nature, and not warranted or guaranteed. Your situation is specific to you alone, so be sure to speak with a Certified Public Accountant or a trusted tax advisor. You are welcome to contact me if you would like a free consultation to discuss your tax situation.
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