Choosing A Tax Preparer
If you need help preparing your tax return, it's important to hire a skilled professional. Not only can a professional find all the deductions you are entitled to, he is also less likely to make mistakes that could cost you money later, if your return is audited and found to be inaccurate. Some preparers will even guarantee that your return is correct, promising to pay any interest and penalties you are charged, and to support you in the event of an audit. (The receipts you cram into your wallet could be replaced with cash come tax season. Find out how in 10 Most Overlooked Tax Deductions.)
Types of Tax Preparers
The type of paid preparer you choose should be based on your needs. How complex is your tax situation? Do you own rental property? A small business? Are you recently divorced? Based on their expertise and fees, some preparers are better matches for certain taxpayers than others.
- Certified Public Accountants (CPAs)
These professionals must pass a rigorous exam to earn their credentials. Not all CPAs specialize in taxes, but those who do are a good choice for individuals with complex returns, such as small business owners and individuals who need tax advice all year, not just at tax time. If you're seeking help with other aspects of your personal finances, choosing a CPA who is also a personal financial specialist can be an efficient way to handle all your financial needs.
To find a CPA in your area, or to check the credentials of a CPA you want to hire, visit your state's board of accountancy website or state CPA society website. (A couple letters can mean a big difference. Find out which designation you need and how to get it, in CPA, CFA Or CFP - Pick Your Abbreviation Carefully.)
- Enrolled Agents (EAs)
These agents are licensed by the federal government to prepare tax returns and represent taxpayers before the IRS in case of an audit. EAs have either passed a comprehensive exam or worked at the IRS for a minimum of five years, must complete ongoing professional education and must have passed an IRS background check. Many EAs can help you with more than just tax planning. Some EAs are also CPAs, and some EAs are also certified financial planners and/or accredited tax advisers.
- Accredited Tax Advisers and Accredited Tax Preparers
These people have studied the tax code and the preparation of tax returns and have passed the proper examination to earn their credentials. Accredited tax preparers are trained in preparing individual returns, including returns for the self-employed, while accredited tax advisers can also assist individuals with tax planning for more complex situations and prepare tax returns for business entities, fiduciaries, trusts and estates. Both must meet continuing education requirements. (These tax-free zones might sound appealing, but the consequences often aren't. Find out more in Taking A Look At Tax Havens.)
- National Retail Tax Preparation Companies
They can offer low, up-front pricing for simple returns. For example, in 2010, H&R Block will prepare your 1040EZ for $39, and state returns for an additional $29 for taxpayers who have no dependents, a taxable income of less than $100,000, are single or married filing jointly, have no mortgage payment and claim the standard deduction.
That being said, individuals and couples with such simple tax returns can often prepare their returns themselves for free with minimal time and effort. H&R Block even offers free software to help prepare federal returns for simple situations. While the most basic software is free, programs for $79.95 are available, which have your return reviewed by a professional and provide the H&R Block guarantee.
Pricing for more complex returns can be harder to pin down ahead of time. Many consumer complaints about national tax preparation companies can be found online, and most of the complaints are about tax preparation fees - customers state that the prices they were quoted ahead of time was much lower than the price they were ultimately charged. Of course, the larger a company, the more likely it is to have some unhappy customers. H&R Block states that the net average fee for tax return preparation in 2009 was $187.36 for the 15.2 million returns the company prepared at its retail centers.
Also, be aware that when you visit a national chain, you may be pitched additional products, like refund anticipation loans. Whenever you are making a decision about a financial product, it's a good idea not to make any on-the-spot decisions. The more services a company can sell you, the more money it will make, but you should do your own research to determine if a product is a good fit for you. (To learn more about refund anticipation loans, read Refund Anticipation Loans: Ripoff or Royal Screwjob?)
If you don't make enough to hire a preparer, you may still have options for getting help with your return. If your adjusted gross income was below $57,000 in 2009, you can prepare and e-file your return for free using the IRS's Free File program. (Read more in Should You File Taxes For Free?)
The AARP's Tax-Aide program helps low- and middle-income taxpayers of all ages, and community volunteers trained by the IRS set up tax preparation clinics nationwide for low-income taxpayers. Also, many tax software programs offer free federal versions to people of all income levels. (For more about these and other free options, read 6 Sources for Free Tax Help.)
The right tax preparer for you is out there, no matter what your tax situation. Conduct careful interviews and research, and you may find someone who can make your life easier for years to come.
Catch up on the past week's top financial news in Water Cooler Finance.