Finding a tax preparer can be a confusing process. They can have different professional designations, various levels of training and charge a wildly varying rate to prepare your income taxes. In order to effectively compare tax preparers, you must understand what it is that you are paying for. Here are the five most important variables to consider when deciding if a tax preparer is charging a reasonable amount for his or her services. (For related reading, also see 11 Most Common Tax Mistakes.)
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Qualifications and Experience of the Tax Preparer
Expect to pay more to have your taxes prepared by a certified public accountant (CPA) than by a non-designated preparer. A CPA can handle complex tax situations that less-qualified preparers cannot. They are required to keep their tax knowledge up to date on an ongoing basis. Starting in 2011, the IRS will require all people who prepare income tax returns for money to go through a basic level of training and testing. If you have or are not certain whether you have complex tax issues, paying extra to benefit from the expert advice of an experienced CPA may save you from paying extra taxes and penalties down the road, in the event of an audit. Regardless of your tax preparer's professional background, always inquire about his level of training and experience.
Complexity of the Tax Issues
Part of the fee you will pay is for the research necessary to handle any unusual tax issues you may have encountered during the year, especially if a review of case law is required. If your return includes intricate taxable transactions, expect to pay an experienced CPA several hundred dollars plus an hourly fee for additional research. At the other end of the scale, simple returns that have only a few tax slips to enter may cost as little as $20 from a non-designated accountant.
Quantity of Tax Events
The sheer volume of taxable issues that need to be handled in your return may drive up the cost. For example, if you have retirement income, a part-time business, a rental property and a large stock portfolio, the preparation time will be longer than average, and so will the fee. To save the tax preparer time, and to get a more accurate quote for your return, list out all of your tax slips and other tax events, such as the operation of a business, buying and selling property or stock and charitable donations you have made during the year. This gives the preparer a more solid idea of the scope of your return. If the accountant finds out half-way through working on your return that you sold your vacation home during the year, expect your fees to go up.
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If you have a small business, a large investment portfolio or other ventures that have many transactions, you can expect to pay more if you take in to your accountant all of your source receipts rather than a neat, accurate summary of transactions. If the tax preparer has to dig through invoices, cash register receipts, bills and other papers in order to decide what is relevant to the business, and then categorize and add them all up, it adds significantly to the time spent preparing the tax return and, ultimately, to the price charged. If you want to save money on tax preparation fees, start by asking the preparer what format she wants to see the summary in, and which categories of expenses and revenues to use. Then, spend time carefully sorting and adding up source documents and give the preparer the summary along with the receipts filed by category.
Some tax preparation companies offer a guarantee of audit support. This means that, if your income tax return is chosen for audit, the tax preparer will represent you in front of the IRS for no additional fee. If you are audited, this can save you a substantial amount of money. However, you will pay more for the preparation fee to cover this risk. Think of it as insurance premiums. When comparing fees, consider which company offers this protection. (For related reading, also take a look at Audit Stories You Won't Believe.)
The Bottom Line
When you are searching for a tax preparer and are comparing prices, be sure to consider the value that you are getting from each one. Know what services they offer for that price, and what their expectations are of you to organize your tax information.