The IRS estimates that 60% of taxpayers use paid preparers. If you regularly turn to a tax pro to prepare your return—or if you have just decided you want to work with one—here are some tips for finding the right person for your situation.
- There are several types of paid tax preparers, but all must have a current i.d. number from the IRS.
- The higher the level of credentials a preparer has, the more they are likely to charge.
- Some types of preparers can also 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), which is an IRS number issued annually to eligible preparers.
Eligible paid preparers fall into different categories, depending on their education, certification by professional organizations, and continuing education requirements.
- Attorneys: These professionals 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 are professionals who have passed the Uniform CPA Examination and been licensed by state boards of accountancy; they also have continuing education requirements.
- Enrolled agents: These are individuals who have passed a three-part Special Enrollment Examination demonstrating competency in federal taxation and been licensed by the IRS. They, too, have continuing education requirements.
- Annual filing season program participants: These individuals are not attorneys, CPAs, or enrolled agents but have completed an IRS program and obtained continuing education.
- Any other preparer with a PTIN: These are individuals who believe they have sufficient knowledge to prepare returns and have paid the fee to obtain a PTIN. They are not subject to any oversight by a state, a professional board, or the IRS.
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 who merely have a PTIN but no other credentials. You can search for a preparer by credentials, zip code, and distance from you.
(There are also enrolled retirement plan agents and enrolled actuaries who are preparers with PTINs. These experts typically don't do consumer tax returns, although they are included in the IRS directory.)
Storefront preparers, such as H&R Block or Liberty Tax, often employ an array of tax professionals, primarily enrolled agents, CPAs, and attorneys. If you visit one, you will likely be assigned to an individual whose skills align with the complexity of your return.
What Will You Pay?
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. The lowest fees are charged by annual filing season program participants and preparers without any special designation.
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, whether you have complex investment transactions, or whether you own a lot of rental properties).
Most preparers charge a flat fee per return. For example, the average going rate for a Form 1040 with a Schedule A (for itemizing personal deductions) is about $294; the national average for preparing a basic return with no itemizing of deductions is less.
Who's Best for What?
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 this type of professional for cutting-edge tax issues that may require litigation. Using an attorney is also advisable if there are any issues that may involve criminal activity because disclosures by a client to an attorney are generally privileged.
- CPAs: These professionals are trained to handle complex tax matters or special issues, such as delinquent returns. They can 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; the privilege does not cover matters disclosed for tax return preparation. If a CPA suspects that there may be 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 with respect to federal tax matters.
- Annual season program participants: They 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.
- Any other preparer with a PTIN: These individuals can be an appropriate choice 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.
Red Flags to Watch For
Once 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 you on the basis of 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 obviously illegal.
- Guaranteeing refunds, or at least no tax liability, without reference to your actual situation.
If you have any concerns, check with the Better Business Bureau to learn if there have been 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.
Some Final Advice
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 other information is on it and that you receive a copy for your files.