Slightly more than half of U.S. taxpayers use paid preparers, according to data from the Internal Revenue Service (IRS). If you regularly turn to a tax pro to prepare your return—or have recently decided you want to work with one—here are some tips for finding the right person for your tax situation.
- There are several types of paid tax preparers, but all must have a current ID number from the IRS.
- The higher the level of credentials a preparer has, the more they are likely to charge.
- Only certain types of preparers can represent you before the IRS if you are audited.
Types of Tax Return Pros
You can have anyone—your uncle, your neighbor, or your best friend—prepare your tax return. But if you’re paying for this service, the person must be registered with the IRS and have a current preparer tax identification number (PTIN), an IRS number issued annually to qualified preparers.
Eligible paid preparers fall into the following categories depending on their education, certification by professional organizations, and continuing education requirements:
- Attorneys: These professionals have earned a law degree and passed a bar exam. They are licensed by states or state bar associations to practice law and are subject to continuing education requirements and a code of ethics.
- CPAs: Certified public accountants have passed the Uniform CPA Examination and are licensed by state boards of accountancy; they also have continuing education requirements. Some CPAs specialize in tax preparation and planning.
- Enrolled agents: Enrolled agents (EAs) have passed a three-part Special Enrollment Examination demonstrating competency in federal taxation and are licensed by the IRS. They must complete 72 hours of continuing education every three years.
- Annual filing season program participants: This voluntary program recognizes tax return preparers who are not attorneys, CPAs, or enrolled agents. Participants have completed an IRS program and obtained continuing education in preparation for a specific tax year.
- PTIN holders: These individuals have an active preparer tax identification number (PTIN), but they don't have professional credentials or participate in the annual filing season program. They are not subject to any oversight by a state, a professional board, or the IRS, and they have no authority to represent clients before the IRS (except for returns they prepared and filed before Dec. 31, 2015).
The IRS has an online directory of preparers with PTINs. It includes attorneys, CPAs, enrolled agents, and annual filing season program participants, but not preparers with a PTIN and no other credentials. You can search for a preparer by credentials, ZIP code, and distance from you—or confirm a tax preparer's credentials.
Enrolled retirement plan agents and enrolled actuaries are other preparers with PTINs. These experts typically don't prepare consumer tax returns, although they are included in the IRS directory.
Storefront preparers such as H&R Block and Liberty Tax often employ an array of tax professionals, primarily enrolled agents, CPAs, and attorneys. If you visit one of these preparers, you will likely be assigned to an individual whose skills align with the complexity of your return.
How Much Does a Tax Preparer Cost?
The more credentialed the person who prepares your return is, the more you can expect to pay. As a general rule, you'll pay the highest fees to attorneys, followed by CPAs and then enrolled agents. Annual filing season program participants and preparers without any special designations charge the lowest fees.
If you make less than $73,000 a year, you can use the IRS's Free File Program, which lets you prepare and file your federal income tax online for free.
Fees vary considerably across the country, depending on the type of preparer and the nature of your return—such as whether you run a sole proprietorship requiring a Schedule C, have complex investment transactions, or own multiple rental properties.
Most preparers charge a flat fee per return. According to the National Society of Accountants, the average fee in 2020 to prepare Form 1040 with the standard deduction was $220, and $323 with itemizing on Schedule A. The amount you pay increases if you add schedules. For example, the average fee in 2020 was $42 for Schedule B, $192 for Schedule C, $118 for Schedule D, and $145 for Schedule E.
Which Type of Tax Preparer is Best?
Cost is only one factor in choosing a preparer. Depending on your situation, certain other considerations may be important. That includes whether you might want the preparer to represent you if the IRS raises any questions concerning your return. These are some general guidelines for each type of preparer.
- Attorneys: It is best to use an attorney for cutting-edge tax issues that may require litigation. Using an attorney is also advisable if any issues may involve criminal activity because disclosures by a client to an attorney are generally privileged.
- CPAs: Certified public accounts are trained to handle complex tax matters and special issues, such as delinquent returns. They represent clients through all levels of IRS interaction, including audits and appeals within the IRS. However, there is only limited privilege between a CPA and client for federal taxes, and the privilege does not cover matters disclosed for tax return preparation. If a CPA suspects criminal issues, they may bring in an attorney for further disclosure.
- Enrolled agents: These professionals can handle most tax matters. They have unlimited representation rights before the IRS and can represent clients during IRS audits and appeals. They, too, have limited privilege concerning federal tax matters.
- Annual season program participants: These individuals can prepare your tax return but have very limited rights to practice before the IRS. They can only represent a client in interactions with IRS agents and customer service representatives.
- PTIN Holders: Any other preparer with a PTIN can be appropriate for simple returns that don’t involve any complex tax issues. A client can give them authority to discuss items on the return with the IRS, but this type of preparer cannot represent a taxpayer in IRS audits and appeals.
Avoid any preparer who plans to charge you based on the size of your tax refund.
When you've decided what type of preparer to use, make sure you steer clear of anyone who may be unscrupulous or could create problems for you. If the IRS suspects that a preparer’s actions are shady, their clients’ returns may be subject to special review. Some tipoffs of suspicious behavior:
- Charging based on the size of a tax refund: This violates the code of ethics to which preparers must adhere.
- Offering to cash refund checks for you: Preparers are subject to penalties for doing this, and merely making an offer to handle refund checks is a red flag.
- Preparing returns without asking you for documentation: Signing off on a return without seeing documentation is illegal.
- Guaranteeing refunds, or at least no tax liability, without reference to your actual situation.
Paid tax preparers are required by law to sign your return and provide their PTIN, so be sure your preparer signs on the dotted line. Also, review the tax return before signing, and never sign a blank or incomplete return. Pay close attention to the routing and bank account number to ensure your refund goes to the right place (i.e., your bank account—not the preparer's).
If you have any concerns, check with the Better Business Bureau to learn about complaints against a particular preparer. Also, check for complaints against CPAs with the appropriate state board of accountancy; for attorneys, consult their state bar association.
If a tax preparer's misconduct or improper tax preparation practices has financially impacted you, you can make a complaint with the IRS.
Can You Report a Tax Preparer for Misconduct?
Yes. According to the IRS, "Most tax return preparers are professional, honest and trustworthy. However, the IRS is committed to investigating those who act improperly." You can report a tax return preparer for misconduct, such as:
- Filing a return without your knowledge or consent
- Altering your tax return documents
- Using an incorrect filing status to get a larger refund
- Using false exemptions or dependents to get a larger refund
- Adjusting income to get a larger refund
- Creating false expenses, deductions, or credits to get a larger refund
- Misdirecting your refund
Who Is Allowed to Prepare Tax Returns?
Anyone can help you prepare your tax return. However, if you're paying someone for this service, they must be registered with the IRS and have an active preparer tax identification number (PTIN). Attorneys, certified public accounts (CPAs), and enrolled agents have unlimited representation rights before the IRS. That means they can represent you on any tax matters, including audits, payment and collection issues, and appeals.
Annual filing season program participants and PTIN holders with no professional credentials can prepare your taxes. However, they have limited representation rights regarding audits, appeals, and collection issues.
Should Tax Preparers E-File Returns?
Yes. The IRS has processed more than 1.2 billion e-filed individual tax returns since electronic filing began in the 1980s. According to the IRS, "It's the safest and most accurate way to file." Per Section 6011(e)(3) of the Internal Revenue Code, paid preparers who reasonably expect to file more than 11 returns in the year are required to file electronically. If a tax preparer does not offer to e-file, it could be a red flag that they don't prepare many tax returns (i.e., they have limited experience).
The Bottom Line
To make the best use of your preparer's time—and keep your bill to a minimum—be sure to gather all the information you need and make a list of your questions before you meet.
If you've worked with a preparer and your return is ready to submit, make sure the preparer's PTIN and signature are included, and that you receive a copy for your files.