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Evaluating and Choosing a Tax Preparer

Updated on January 23, 2016
If the preparer still uses a pencil, you might want to look further
If the preparer still uses a pencil, you might want to look further | Source

Knowledge.

Though it's impossible to know the entire US Tax Code, a good preparer understands the basics and is willing to research anything never encountered before. Have a conversation about your general situation. Your questions shouldn't be brushed aside as trivial. Some louts who hate people love taxes, and do them quite well, but most taxpayers prefer a tax pro who is approachable and articulate.

Preparers may also specialize. Income from foreign sources, corporate returns (even small businesses) and unusual investments will all be better done by a preparer who has experience with them.

Sharing and teaching are things good preparers do, too. Does the preparer ask if you have adequate documentation for your income and expenses? And, when you look blank, explain to you what that means? Does the preparer ask you about common expenses you might have but forgot to provide? Ask you to explain unusual expenses that you listed among your receipts?

Trust.

Do you trust what the preparer says? Do you trust the preparer NOT to say anything about you to other customers? If you suspect that someone gossips, you don't want them as a tax preparer -- who can know more about your finances than you do yourself. If your preparer tells you funny stories about other clients, there's a good chance your funny story is being repeated to others, too. Be cautious about choosing a preparer who has too much in common with you, such as being in the same bowling league. Common friends may lead to common gossip.

If you have a serious problem with the IRS or state tax agency, your preparer may ask for a Power of Attorney (Form 2848). You need to be able to trust that the individual will not mis-use the authority.

Are you given copies of everything you sign and everything the preparer presents to the government for you? IRS guidelines say that paid preparers should provide clients with a copy of the return. If the preparer doesn't feel comfortable giving you copies, there might be something fishy going on.

Availability.

Does the preparer disappear for eight months out of the year? Letters from the government come out during the summer and fall months, too. Sometimes the government is right, sometimes wrong. It never hurts to have your tax expert look over the letter before you respond.

Do you have more than one way to contact the preparer? A message on an answering machine is fine if the machine is checked regularly. An email address or fax number is good too. Even if it is somebody else in the same firm who replies, at least you are reaching someone.

Decisions.

Does the preparer offer choices and allow you to make the decisions? At the least, the preparer should explain to your satisfaction why some things were done the way they were. Very simple tax returns may have choices limited to "do we itemize or not?" These types of questions have fairly obvious answers. But as your return gets more complex, there are more decisions to be made. You should be made aware of the considerations: "Would bonus depreciation on this business asset be better than expensing (Section 179)?" "Can I take the standard mileage rate this year for my unreimbursed employee mileage?" "Can I deduct the interest I pay on the loan for those two acres of land I bought?"

Certifications.

The designations "Certified Public Accountant" (CPA) and "Enrolled Agent" (EA) don't guarantee that the person knows everything about taxes. But they do suggest that the person has some experience, and studied the materials enough to pass the required exams. There are excellent preparers that hold neither title.

How mistakes are handled.

Everyone makes a mistake sometimes. Or the software has an issue. But your return was deemed to be wrong by the Internal Revenue Service and it wasn't your fault. Does the preparer offer to amend your returns (preferably for free, if the preparer made the mistake)? Explain to you how much is owed and what options you might have to pay it? Discuss whether the state return is affected too? Most professionals carry some type of errors and omissions insurance, so it doesn't hurt to ask them if there is any recompense available. It will probably be limited to a refund of fees, or paying the penalty and interest.

Cost.

Though often the deciding factor in choosing a professional, you might want to take note of any other "fees" beyond basic tax preparation. Some firms create interesting additional charges that they should be able to explain upfront. Tax preparers cannot legally charge a fee based on the amount of your refund for a tax return, but can for an amended return. Make sure the preparer can tell you what the total cost is before the return is sent to the IRS.

What's most important to you about your tax preparer?

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