6 Things You Must Know About Tax Preparers
Make sure you find someone who is qualified and competent.
1. Anyone can hang out a shingle.
In 46 states and the District of Columbia, you can order a batch of business cards and start preparing tax returns. Only four states—California, Maryland, New York and Oregon—require tax preparers to register with the state and meet minimum standards. An IRS regulation that would have required tax preparers to pass a competency exam and take continuing-education courses was struck down by a federal district court last year. Because it’s so easy to become a tax preparer, the business is ripe for fraud, say consumer groups.
2. Get a referral.
Professional organizations, such as the American Institute of CPAs and the National Association of Enrolled Agents, are good sources. You can get a list of local CPAs from your state’s CPA society, or go to www.aicpa.org/advocacy/state/statecontactinfo. Both certified public accountants and enrolled agents must pass competency exams and are required to take continuing-education courses. Enrolled agents, CPAs and tax attorneys have the right to represent you before the IRS if you’re audited.
3. What you’ll pay.
The average cost to prepare itemized federal and state tax returns for 2014 is $273, according to the National Society of Accountants; for returns with no itemized deductions, the average is $159. Your cost will vary depending on where you live and the complexity of your return. Be suspicious of any preparer who quotes a fee that’s significantly lower than average. Dishonest tax preparers often give potential clients a lowball quote, then add hundreds of dollars after the return has been completed, says Chi Chi Wu, a staff lawyer for the National Consumer Law Center.
4. How to tell the good guys ...
A reputable preparer will ask questions about your personal situation, says Edward Karl, vice-president of taxation for the AICPA. A preparer who charges by the hour should provide the hourly rate along with an estimate of the number of hours it will take to complete your return. If the preparer is elusive about how fees are calculated, “that’s a problem,” Karl says. Never hire a tax preparer who bases fees on a percentage of your refund.
5. ... from the bad guys.
Preparers are required by law to sign your return and include a Preparer Tax Identification Number. If a preparer doesn’t have a PTIN or doesn’t want to sign, grab your W-2s and 1099s and leave. You should also head for the exit if a preparer asks you to sign a blank return. Remember: You’re responsible for the information on your tax return, even if someone else prepares it.
6. You could do it yourself.
Programs from TurboTax, H&R Block and TaxAct do a fine job of alerting users to tax breaks and flagging errors, and they let you e-file your return, too. (Note, however, that the desktop version of TurboTax Deluxe no longer includes schedules C, D and E; if you need those forms, you will have to upgrade to TurboTax Premier or Home and Business, or choose another tax-prep program.) If your household adjusted gross income was $60,000 or less in 2014, you can prepare and e-file your federal return free through the Free File program.