What to consider in hiring qualified tax-preparer
NEW YORK – American workers have started receiving W-2 tax forms from their employers, which means the April 15 income tax filing deadline isn't that far away. While many people still do their own taxes, a majority seek professional help to deal with the increasingly complex tax code.
Taxpayers who have experienced a significant lifestyle change in the past year – the birth of a child, the death of a spouse, the loss of a job – are among those who could benefit from the help of an accountant, enrolled agent or other tax professional in preparing their returns this year, experts say.
"There are some people who do their own taxes year after year, and that's just fine," said Eric Tyson, a financial consultant and co-author of "Taxes 2008 for Dummies." "But a significant change in your personal situation can be a good reason to think about hiring an adviser."
One of the best ways to find a good tax preparer is to ask family members and friends for recommendations, said Suzanne Schmitt, RIA senior tax analyst with Thomson Tax & Accounting.
"You want to ask people you trust, especially people who are in similar circumstances," she said.
That is, if you just bought a condominium, find someone who has used a tax preparer who is knowledgeable about real estate transactions; or if you've got a home-based business, you want a preparer who can handle that kind of return.
Tax preparers have a variety of titles, which can cause confusion.
Many tax preparers are certified public accountants, who have graduated from accounting programs at colleges or universities and have passed a uniform exam. The American Institute of Certified Public Accountants maintains a Web site at www .aicpa.org that has a "find a CPA" section.
Some attorneys specialize in tax matters and also will complete clients' returns.
Another group of preparers are the enrolled agents, who are specially trained and licensed to practice before the IRS. Their trade association, the National Association of Enrolled Agents, has an Internet site at www.naea.org with membership lists.
There also are trained professionals working at the major commercial tax preparation chains like the Jackson Hewitt Tax Service Inc., which is headquartered in Parsippany, N.J., and H&R Block Inc., based in Kansas City, Mo.
Schmitt said consumers should avoid dealing with tax preparers who make outrageous promises.
"If someone hasn't even looked at your records but promises a big refund, that's someone to avoid," she said.
Schmitt added that another red flag is someone who wants to be paid a percentage of whatever refund they get a consumer.
"They then have the incentive to produce a higher refund that may not be sustainable upon audit," she warned. Tyson said that consumers should ask prospective preparers what the focus of their practice is – that is, do they specialize in individual returns, small business returns or, perhaps, work with several generations of the same family? Consumers also should ask how the preparers are compensated.
Although some firms quote fees based on the type and number of forms to be filed, most generally provide estimates based on the time needed to prepare the returns, Tyson said.
A recent survey of 8,000 tax preparers by the National Society of Accountants found the average fee for an itemized Form 1040, U.S. Individual Income Tax Return, with a Schedule A, Itemized Deductions, and a state tax return was $205. A federal and state return without itemized deductions averaged $115, the Alexandria, Va.-based group found. Its members are independent accounting and tax professionals.
The fees are higher for people with more complicated tax filing needs, such as those in business partnerships or with estate issues.
Tyson acknowledged that it's sometimes hard to tell in advance how good a potential preparer is.
"It's a delicate balance," he said. "You don't want someone too aggressive that does shady things. You also don't want someone who is too conservative and doesn't do legitimate things out of fear of an audit."
There are ways, too, that consumers can hold down the cost of tax preparation.
"If you organize your paperwork so it reduces the time the preparer has to spend, it will hold down your costs," Tyson said.
He also recommended getting started sooner rather than later because "if you leave it until the last minute, you may have to pay a premium to get it done by April 15 or pay to file for an extension" of the filing deadline.