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Choosing The Right Tax Preparer For You

© by Charles E. McCabe

Why Not Do It Yourself?

If you enjoy the challenge of tackling Form 1040 and have ample time to study the tax laws, plus the ability to comprehend them, by all means, you should save money and prepare your own tax return. But if you're like the majority of American taxpayers, the "do it yourself" route could be a costly mistake. Even if you can find time to muddle through the tax laws, you're not likely to learn everything you need to know to minimize your tax bill. Chances are you'll spend many frustrating hours and still wind up paying more than your fair share. Given The complexity of our income tax laws and the ever-increasing demands on our time, becoming a once-a-year tax expert just isn't practical.

What Factors Should You Consider?

Who you choose as your tax preparer and what you pay for this service depends on the complexity of your personal tax situation and your personal preferences. Here are some considerations to help you select the best tax preparer for you.

Tax Knowledge: If your situation calls for a "Short Form" (1040A or 1040EZ) and you prefer not to handle it yourself,you obviously won't need a high-priced tax professional. Yet, unless you are interviewed by a relatively knowledgeable tax specialist, you may file on the wrong form or overlook important tax considerations that could save you money. Even if you should file Form 1040A, you might still be eligible for tax advantages such as Head of Household status, Child/Dependent Care Credit or Earned Income Credit. Every taxpayer needs an advisor who knows all the questions to ask pertinent to his or her specific tax situation. Yet a CPA or a tax attorney is "overkill" for a simple tax return.

Credentials: Virginia has no licensing laws for tax practitioners--anyone can "hang out a shingle" and set up shop as a tax preparer. Also, an individual might have credentials generally associated with tax knowledge and not be qualified to prepare non-routine individual tax returns. Relevant education and experience are necessary for anyone to competently prepare the wide array of individual income tax returns filed by the general public. A tax attorney or a CPA who specializes in individual income tax law is obviously qualified. But many CPAs and attorneys learn and practice corporate taxes only. Individual income tax preparation is a complex and specialized field of study. A very significant credential in the field is Enrolled Agent status, attained by passing an intensive exam administered each fall by the IRS. An Enrolled Agent is authorized to represent taxpayers before the IRS. Another good indicator of individual competence is experience in teaching tax preparation at a recognized school. Regardless of credentials, competent tax preparers must keep current on the ever-changing tax laws through education. And a tax preparer who doesn't continue to practice will quickly become "rusty." Ultimately, knowledge and experience are the best credentials.

Accuracy: There can be only one correct result for an individual's income tax returns; the one that yields the lowest legitimate tax, which translates to the smallest tax bill or largest refund possible. Judge Learned Hand, a renowned American lawmaker, once said:

"Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes..."

Since anyone can make a mistake, your return should be checked for accuracy, both in math and theory, by a tax specialist other than the preparer. Computerized processing of tax returns can help ensure thoroughness and accuracy, assuming a good software package is used by a knowledgeable tax professional.

Professionalism: Getting your taxes prepared can actually be a pleasant experience if you're being served by a true professional; and you shouldn't have to pay a premium for professional service. You should expect a pleasant office atmosphere with a reasonable degree of privacy and comfort. You should also be treated with respect and courtesy. You shouldn't feel as though you're just another number being processed in production line style. Of course, your personal and financial information should be held in strict confidence. Finally, the person or firm you select should have unquestionable integrity.

Personal Service: Your tax preparer's job is to become thoroughly familiar with your personal financial situation and to help you provide the information necessary to minimize your taxes. He or she should inform and educate you on the tax laws affecting your personal situation. This information will enable you to make decisions as to how your return is to be prepared. Your tax advisor should be working to help you avoid problems with the IRS, but should not behave like an IRS auditor. By the end of your interview, you should have no question in your mind that all your personal concerns were addressed and your best interests were served. Basically, the best tax preparers are not "tax technicians." They are knowledgeable individuals who are not condescending or aloof, but have empathy and genuine concern for the best interests of every one of their clients.

Convenience: Most people prefer to have their taxes prepared at an office near where they live, shop or work. Many taxpayers can only find time to get their taxes done in the evening, or on a Saturday or Sunday. Fast service is also important to most clients. Some people are willing to pay a premium to have their tax advisor come to their own homes or offices. Others prefer to walk-in at their convenience, and many prefer to make a specific appointment. Convenience is important, but other factors should outweigh convenience when your personal tax situation becomes more complex than average. Ideally, you will find a convenient tax preparer with all the other qualities you are seeking.

Availability: Will your tax preparer be there for you in July when you get a letter from the IRS? If you're not sure, you'd better look for another one. A reputable tax professional will be readily available all year round to provide assistance with any tax problems or questions you may have.

Guarantee: What happens if your tax preparer makes a mistake that costs you penalties or interest? Suppose you are audited by the IRS? What if you're not satisfied with the way your return was prepared? Before you contract with a tax preparer, you should find out the answers to each of these questions.

Stability: Even if your tax preparer meets all of your criteria, you should ask yourself if you think he or she will probably still be around to help you this summer, or next year, or five years from now when you need tax assistance. The greatest stability may be available through an established, reputable firm rather than an individual tax practitioner. Yet, most people who seek tax assistance prefer to see the same friendly face year after year. Therefore, a firm that retains its good people for a long time would probably be a good bet, all other things considered.

Price: The cost of preparing any tax return can vary dramatically among different tax practitioners. IRS law prohibits tax preparers from basing their fees on the amount of tax refund obtained by the client. Many tax practitioners charge by the hour, others operate from a standard schedule of charges, and some simply charge "what the traffic will bear." Higher levels of tax expertise typically command higher fees. Ideally, you will find a tax professional with the level of expertise you need for a price you can afford. Perhaps the fairest basis for setting fees is the complexity of the income tax return, determined by the schedules and statements required. This method enables a price to be quoted in advance that will apply regardless of how long it may take for the tax preparer to complete the return. If your tax return is complicated, a tax practitioner may have difficulty quoting an exact price before conducting a thorough interview. However, your candidate should be able to give you a rough idea of the probable fee.

Most people who inquire about price simply want a "ball park figure" to determine whether the cost will be reasonable and affordable. Be wary of tax practitioners who avoid disclosing the basis for their fees in advance. You should also ask if you will be charged extra for tax information should questions arise later, or for assistance in the event of an audit.

Types of Professional Tax Preparers

Advantages and disadvantages of the following types of tax practitioners should be considered in choosing the best source of professional tax assistance for you.

Independent Tax Practitioner:

(1) You should get highly personal service;
(2) You won't see a different face each year;
(3) Since overhead will probably be lower, the fee may also be less;
(4) You will be able to closely scrutinize the tax preparer's qualifications.

(1) The practitioner could stop practicing at any time;
(2) Math or theory errors could go undetected with no one available to check the sole practitioner's tax returns;
(3) Guarantees may be undefined or unavailable;
(4) Assistance may not be readily available during the off-season.

Small Accounting or Tax Firm:

(1) You should get relatively personal service;
(2) Fees should be more reasonable than large accounting firms;
(3) Stability should be greater than independent practitioners;
(4) Tax preparers may cross-check one-anothers' work, thereby reducing the possibility of errors and omissions;
(5) Help should be available during the off- season.

(1) Guarantees may be undefined or unavailable;
(2) Office location or hours may not be convenient;
(3) The firm may have a limited range of specialized skills represented among its tax preparers.

Large Accounting Firm:

(1) You should get very personal service;
(2) The firm will be stable;
(3) Accuracy level should be high;
(4) Help will be readily available year 'round;
(5) The firm should have a number of highly qualified specialists.

(1) Fees will probably be "out-of-reach" for most individual taxpayers unless the tab is picked up by their employers;
(2) Office location and hours may be inconvenient;
(3) Service may be slow;
(4) Actual tax return information gathering and preparation may be delegated to less qualified para-professionals and reviewed by a tax partner.

Financial Institutions:

(1) The institution is most likely very stable;
(2) Accuracy level should be high;
(3) Year 'round help will be available;
(4) Personal service should be provided;
(5) The institution should have some qualified tax specialists on staff;
(6) Convenient locations may be available.

(1) Fees will probably be high;
(2) Convenient office hours may not be available;
(3) Service may be slow;
(4) Tax Returns may be "farmed out" to computer tax processing services;
(5) Actual tax preparation may be delegated to less qualified para-professionals;
(6) Tax services may be available only to preferred customers of the financial institution.

Financial Planning" Firms:

(1) Personal service should be available.

(1) Fees may be high;
(2) Tax knowledge may be limited;
(3) The primary goal of some planners may be to earn commissions by selling you
financial products.

Major Tax Preparation Firms:

(1) The company will probably be quite stable;
(2) Degree of accuracy should be high;
(3) Year 'round assistance will be readily available;
(4) The company will have some very knowledgeable tax specialists on staff;
(5) Convenient locations and office hours will be available;
(6) Adequate guarantees will be available;
(7) Service should be very prompt;
(8) Fees will be affordable for most taxpayers.

(1) Quality of service may be inconsistent from office to office;
(2) You may not get the same tax preparer each year;
(3) Professionalism may be lacking;
(4) Service may resemble a production line. Not every tax preparer can be classified into one of the broad groups described above. And some preparers in each category will have characteristics different than those typical of the group.

How to Pick the Best Preparer for You?

Like any other consumer purchase, unless you obtain a strong recommendation from someone whose judgement you trust, you need to shop around for the best value. Before starting, you should determine the type of tax preparer you can afford and decide how far you are willing to drive, as well as when you can find time for a personal interview. To obtain a price estimate by phone, be prepared to describe your tax situation in detail. Having last year's tax return in front of you may help. To help you determine the preparer's professionalism, you could inquire about professional affiliations, references and memberships in organizations such as the Better Business Bureau and your local Chamber of Commerce. You may also want to visit the preparer's office to assess the atmosphere and privacy. The checklist below may help you compare the acceptable alternatives you can afford.

Checklist: Choosing a Professional Tax Preparer

About the author:

Charles E. McCabe, a 25+ year veteran income tax preparation industry executive, has managed hundreds of tax preparation offices in New York, New Jersey, Maryland, D.C., Virginia and Brazil. He is Founder and President of Peoples Income Tax, Inc. a Richmond-based firm which operates income tax preparation offices throughout metro Richmond, Colonial Heights and Fredericksburg, and has independent licensees nationwide.


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