According to statistics provided by the Internal Revenue Service (IRS), slightly more than half of taxpayers in the United States utilize the services of paid preparers.
If you turn to a tax pro on a regular basis to prepare your return, or if you just recently decided that you want to work with one, here are some tips for finding the right person for your tax situation. If you turn to a tax pro on a regular basis to prepare your return, here are some tips for finding the right person.
KEY TAKEAWAYS
- There are many different categories of paid tax preparers, but the Internal Revenue Service (IRS) mandates that they all have a valid tax preparer identification number.
- The higher the level of credentials held by the preparer, the more likely they are to charge a higher rate.
- If you are selected for an audit by the IRS, you can only be represented by certain types of tax preparers.
Different Kinds of Tax Return Professionals
You are free to have anyone prepare your tax return, including your uncle, your next-door neighbor, or your closest friend. However, if you pay for this service, the person providing it must be registered with the Internal Revenue Service (IRS) and possess a valid preparer tax identification number (PTIN), which is a number issued by the IRS on an annual basis to qualified preparers.
In accordance with the requirements for education, certification by professional organizations, and ongoing education, paid preparers are classified as one of the following categories, depending on their qualifications:
A law degree and successful completion of the bar examination are both requirements for a career as an attorney. To be able to practice law, they must first obtain a license from the state or from the state bar association and then comply with mandates for ongoing professional development and an ethical code.
- CPAs: Certified Public Accountants Certified public accountants have passed the Uniform Certified Public Accountant Examination and are licensed by state boards of accountancy. In addition, CPAs are required to participate in continuing education. Some certified public accountants focus their practice on tax preparation and planning.
- Enrolled agents: Enrolled agents (EAs) are licensed by the Internal Revenue Service (IRS) and have successfully completed all three parts of the Special Enrollment Examination, which tests their knowledge of federal taxation. They are required to participate in continuous education for a total of 72 hours every three years.
- Participants in the annual tax filing season program: Preparers of tax returns who are not attorneys, certified public accountants, or enrolled agents can earn recognition through this voluntary program. Participants have successfully completed a program offered by the IRS and have obtained continuing education in order to be prepared for a particular tax year.
- PTIN owners are individuals who are in possession of a valid PTIN; however, they do not take part in the annual filing season program nor do they have any professional credentials. They are not subject to any type of oversight by a state, a professional board, or the IRS, and they do not have the authority to represent clients in front of the IRS (with the exception of returns that they prepared and filed prior to the deadline of December 31, 2015).
- An online directory of tax preparers who hold PTINs is available through the IRS. Preparers who only have a PTIN and no other credentials are not included, but it does include attorneys, certified public accountants, enrolled agents, and participants in annual filing season programs. You can search for a preparer by credentials, ZIP code, and distance from you—or confirm a tax preparer’s credentials—or you can search for a preparer using distance from you.
Other types of preparers who are eligible for PTINs include enrolled retirement plan agents and enrolled actuaries. Despite the fact that they are listed in the IRS directory, these professionals typically do not prepare individual tax returns.
Storefront preparers like H&R Block and Liberty Tax
They typically employ a wide variety of tax professionals, most commonly enrolled agents, certified public accountants, and attorneys. If you go to one of these preparers, you will most likely be given your return to be worked on by an individual whose expertise is a good match for the level of difficulty of your return.
How Much Does It Cost to Have Your Taxes Prepared?
The higher the level of education and experience of the individual who prepares your tax return, the higher the price you should anticipate paying. The fees charged by attorneys are typically the highest, followed by those charged by certified public accountants and finally by those charged by enrolled agents. Participants in annual filing season programs who do not have any special designations and preparers who charge no additional fees have the lowest rates.
You are eligible to use the Free File Program of the Internal Revenue Service (IRS) if your annual income is less than $73,000. This program enables you to prepare and submit your federal income tax return online at no cost.
The cost of preparing your taxes can vary greatly depending on the type of preparer you use and the specifics of your return, such as whether you run a sole proprietorship that needs a Schedule C, have complex investment transactions, or own multiple rental properties.
The majority of preparers charge a one-time, flat fee for each return. The National Society of Certified Public Accountants estimates that the average cost of preparing a Form 1040 in 2020 was $220 when using the standard deduction and $323 when using Schedule A to itemize deductions.
When you add additional schedules, the total price that you pay goes up. In the year 2020, the average fee for Schedule B was $42, the average fee for Schedule C was $192, the average fee for Schedule D was $118, and the average fee for Schedule E was $145.
Which Kind of Tax Preparation Service Is Ideal?
When choosing a preparer, cost should not be the only consideration. Other things to take into account might be crucial, depending on the specifics of the circumstance. This includes determining whether or not you want the preparer to represent you in the event that the IRS has any questions regarding your return. These are some general guidelines that should be followed by every kind of preparer.
Attorneys: When dealing with cutting-edge tax issues that could lead to litigation, it is in your best interest to hire an attorney. Because communications between a client and an attorney are often regarded as privileged, it is in a person’s best interest to retain legal representation whenever there is a possibility that a problem may involve illegal behavior.
Certified Public Accountants (CPAs)- Certified Public Accountants (CPAs) are educated to handle difficult tax matters and special issues, such as overdue tax returns. They represent their clients in all levels of interaction with the IRS, including audits and appeals that take place within the IRS. However, the privilege that exists between a certified public accountant (CPA) and a client in regard to federal taxes is extremely limited, and the privilege does not cover matters that are disclosed for the purpose of tax return preparation. If a certified public accountant has reason to suspect there may be criminal activity, they might consult an attorney for further disclosure.
Enrolled agents are licensed professionals who are able to handle the majority of tax issues. They can represent their clients before the IRS in any capacity, including during audits and appeals, and they have unrestricted representation rights.
In relation to matters of federal taxation, they, too, have a degree of privilege. Pparticipants in the annual season program are: These individuals have the ability to prepare your tax return; however, their rights to practice before the IRS are extremely restricted. They are only allowed to represent a client in conversations with IRS agents and representatives from the customer service department.
PTIN Holders: Returns that are straightforward and do not involve any intricate tax concerns can be handled by any other tax preparer who possesses a PTIN. However, a taxpayer cannot be represented by this type of preparer in IRS audits or appeals. A client can give them authority to discuss items on the return with the IRS, but they cannot represent the taxpayer. You should look elsewhere for someone to prepare your taxes if they base their fees on the amount of your tax refund.
Red Flags
When you have decided what kind of preparer you will use, be sure to stay away from anyone who might not have your best interests at heart or who might cause you difficulties. If the IRS has reason to believe that a preparer engaged in questionable behavior, the returns that they prepared for their customers could be singled out for additional scrutiny. Some indicators that a person’s behavior might be suspect:
- It is against the code of ethics that tax preparers are required to adhere to for clients to be charged based on the amount of a tax refund.
- Taking care of the cashing of your refund checks for you: It is a violation of the law for preparers to do this, and the mere fact that they offer to handle refund checks should raise a red flag.
- Preparing tax returns without requesting documentation from taxpayers: It is against the law to approve a return without first viewing the supporting documentation.
- Providing assurances of refunds or, at the very least, the absence of any tax liability, without taking into account the taxpayer’s particular circumstances.
- It is required by law for paid tax preparers to sign your return and provide their PTIN, so double check that your preparer has signed on the appropriate line of the return. Also, read over the tax return before signing it, and under no circumstances should you sign a return that is blank or missing information. If you want to make sure that your tax refund is deposited into the correct account (that is, your bank account, and not the preparer’s), you need to pay careful attention to the routing and bank account numbers.
- In the event that you have any concerns, you should check with the Better Business Bureau to learn about any complaints that have been lodged against a specific preparer.
Also, check with the relevant state board of accountancy for any complaints lodged against CPAs; for legal counsel, speak with the state bar association in that particular state.
You have the right to file a complaint with the Internal Revenue Service (IRS) if you feel that your finances have been negatively affected by the dishonesty or improper tax preparation practices of a tax preparer.
Is it possible to report a tax preparer for unethical behavior?
Yes. The Internal Revenue Service (IRS) asserts that the majority of tax return preparers are trustworthy, professional, and honest. On the other hand, the IRS is dedicated to conducting investigations into those who behave dishonestly.
You have the ability to file a complaint against a tax return preparer for unethical behavior, such as
Unknowingly or unwillingly submitting a return on your behalf.
Changing the documents that make up your tax return
fraudulently claiming a different tax status in order to obtain a larger refund.
claiming false dependents or exemptions on tax returns in order to receive a larger refund.
Changing one’s income in order to receive a larger tax refund
Creating fictitious deductions, expenses, or credits in order to receive a larger tax refund.
Your refund has been misdirected.
Who is authorized to compile and submit tax returns?
Your tax return can be prepared by anyone who wants to help. However, if you are going to pay someone else for this service, they are required to be registered with the Internal Revenue Service (IRS) and have a valid preparer tax identification number (PTIN). Enrolled agents, certified public accountants (CPAs), and attorneys all have unrestricted rights to represent clients before the Internal Revenue Service. This indicates that they are able to represent you in any tax matter, including audits, issues pertaining to payment and collection, and appeals.
Participants in the annual filing season program and those who hold a PTIN, even those without professional credentials, are able to prepare tax returns. On the other hand, they have restricted rights to representation in matters pertaining to audits, appeals, and collections.
Should tax preparers e-file returns?
Yes. Since the beginning of electronic tax filing in the 1980s, the Internal Revenue Service has processed more than 1.2 billion individual tax returns that were submitted via electronic filing. In the words of the Internal Revenue Service, “It’s the safest and most accurate way to file.”
Electronic filing is required of paid preparers according to Section 6011(e)(3) of the Internal Revenue Code. This requirement applies to paid preparers who reasonably expect to file more than 11 returns in a given year. If a tax preparer does not provide the option to electronically file tax returns, this may be a warning sign that they do not handle a high volume of tax returns and therefore have limited experience.
The Crux of the Matter
Before you meet with your preparer, be sure to compile all of the information you require and write down any questions you have so that you can make the most efficient use of their time and reduce the total cost of the service.
If you used a preparer to help you with your return and it is now ready to be sent in, double-check that the preparer’s PTIN and signature are on the return, and make sure you get a copy of the return for your records.
