How to Choose a Tax Preparer

How to Choose a Tax Preparer

Professional tax preparers are responsible for filing roughly half of the total tax returns prepared in the United States. Tax preparers are very useful for deciphering the increasingly complex tax code. As a professional tax preparer myself, I would know.

But how do you know if you’re using the right tax preparer? Here is an insider’s view on what you need to know before hiring someone to do your taxes.

PTINs

Every professional tax preparer is required to have a PTIN in order to be paid for tax preparation. A PTIN is a Preparer Tax Identification Number. These are issued to tax preparers by the IRS as a method to track tax returns filed by that preparer.

The IRS requires that tax preparers include their PTIN on every return they file for compensation, or they will be subject to penalties and fees. If your preparer doesn’t have a PTIN or gives you a copy of your return that doesn’t include their PTIN, run away.

Note: Volunteer tax preparers or preparers are not required to have a PTIN.

But pretty much anyone can request a PTIN. All you need is your name, address, date of birth, and Social Security Number to apply and the IRS will generate you a PTIN in less than 15 minutes. Is that enough for you?

Check Their Credentials

Verify your preparer has some sort of professional designation. CPAs, attorneys, and enrolled agents are the gold standard for tax preparers. You may also see preparers who participate in the IRS’ annual filing season program (AFSP participants).

While you may be able to find a highly reputable tax preparer who holds no professional designation, those who do are subject to certain ethical regulations mandated by the IRS and are required to complete continuing education each year to stay up to date in their field.

The IRS maintains a directory of credentialed tax preparers on their website. You can search by name, location, or credential to help you narrow down your search.

Here’s the low down on the different designations.

CPA

CPA stands for Certified Public Accountant. CPAs are licensed in the state they practice in. They have completed a certain number of college credits in accounting, passed the CPA Exam in their state, and worked for a specified amount of time under another licensed CPA.

CPAs must complete a specified amount of continuing education, with requirements varying from state to state.

But just because you’re working with a CPA, doesn’t mean that they’re right for you. CPAs are qualified to do lots of things outside of tax. In fact, many CPAs do not focus on tax and simply prepare tax returns during tax season for some extra income or to help their firm get through the busy season. But CPAs will also come at a premium.

Make sure your CPA knows their stuff before choosing to work with them

Attorneys

Attorneys (lawyers) have gone to law school and passed the bar exam in the state they practice in. There are some attorneys that specialize in tax law. These are the ones you’ll want to seek out if you want a lawyer to do your taxes.

Attorneys must complete continuing legal education each year. CLE requirements are set by their state bar association. Requirements can vary widely from state to state.

Tax attorneys are great if you have a legal issue that coincides with your tax return. They can represent you in Tax Court if need be. Like CPAs, attorneys also value their time highly and it will show when they send you the bill.

Enrolled Agents

Enrolled Agents are the only top-tier tax professionals to be managed directly by the IRS. To become an EA, candidates must pass a three-part exam issued by the IRS to certify their level of expertise in federal tax law. Unlike CPAs and attorneys, you do not need a college degree to become an EA. But that doesn’t mean they don’t know their stuff.

Enrolled Agents must complete at least 16 continuing education credits each year and 72 credits every three years.

While CPAs and attorneys can vary in their main focus, EAs are all about tax. The CPA exam and bar exam cover a wide variety of topics with tax being a small part of the knowledge requirement. EAs are only tested on federal tax law. EAs can also be more affordable than their CPA and attorney counterparts.

Annual Filing Season Program Participants

AFSP participants are non-credentialed tax preparers. They elect to participate in the AFSP to show they are willing to uphold the highest levels of professionalism and ethics like their credentialed counterparts.

Tax preparers enrolled in the AFSP must complete 18 hours of continuing education each year to maintain this designation.

Volunteer Tax Preparers

Volunteer tax preparers are more common than you might think. The IRS has two volunteer programs run all over the United States. They are called the Volunteer Income Tax Assistance (VITA) Program and the Tax Counseling for the Elderly (TCE) Program. The VITA program is run by non-profits, financial institutions, and local governments. The TCE program is primarily run by the AARP Foundation.

These programs prepare taxes for free for low to moderate-income individuals and families. They train volunteers to become tax preparers, with the training culminating in a certification exam they must pass each year to ensure they have the required knowledge to prepare taxes for people in need.

These volunteer programs are great if your household income falls below $56,000 per year. The best part is they’re completely free!

See What They Charge

Most legitimate tax preparers charge by the hour. Others may charge by the form. The more forms you have, the higher the price tag. Generally, once you show your tax preparer all the documents you have for them, they should be able to give you a preliminary quote.

According to a 2019 survey by the National Society of Accountants, the average cost for a tax return is $188. The price jumps significantly to $294 if you plan to itemize your deductions.

Preparers who claim they will get you a bigger refund than their competition or who charge based on the size of your refund should be avoided at all cost. These are major red flags.

Memberships

Tax preparers who are members of professional organizations are a sign of a reputable professional. There are many different organizations and they vary based on credentials. The big ones to look out for are:

  • National Association of Tax Professionals – NATP
  • American Institute of Certified Public Accountants – AICPA
  • National Association of Enrolled Agents – NAEA

These organizations have stringent ethics, code of conduct requirements, and mandate additional continuing education requirements for their members.

Word of Mouth

A recent survey showed that the majority of new clients that tax preparers take on each year found them by word of mouth. Ask your friends and family who they use and if they would recommend them. As an added bonus, some tax preparers may give you discount on your first year if you were referred by one of their current clients and give a discount to the person who referred you.

What if Things Go Wrong?

See if your tax preparer is willing to help you out should the IRS come knocking on your door one day.

Non-credentialed tax preparers, just your average Joe with a PTIN, can’t help you out with the IRS. It’s up to you to figure out what to do.

CPAs, EAs, and attorneys with PTINs can represent any taxpayer before any level of the IRS, whether or not they prepared your return. Most of them will be willing to do so, for a handsome fee. The average fee for representation services hovers around $150 per hour.

AFSP Participants can represent you in an audit only for the tax returns they prepared for you, but if you disagree with the results of the audit, they can’t help you with an appeal. EAs, CPAs, and attorneys can help you with the many levels of the appeals process and navigate the bureaucracy nightmare that is the IRS.

Communication is Key

A good, trustworthy tax preparer will communicate openly with you. You’ll want your tax pro to pick up the phone if you call, respond to your emails, and be available to meet with you year round should you need help.

Many tax pros will encourage you to stick with them year after year, and will meet with you during the off-season to keep you on track. Your tax preparer can help you not just by filing your tax return every Spring, but they can develop a plan to ensure you pay as little tax as possible. Keep them in the loop when it comes to major financial decisions.

Moral of the Story

You’ve got the tools now to help you decide which tax preparer you should pick.

Need help figuring out how to do your taxes? Check out our guide for whether you should hire a tax pro or do it yourself.

Related: What’s the Best Way to Do Your Taxes?

Scott Marcello

Scott Marcello is the founder of CleverWithCash. He's gathered experience in several areas of finance having worked in a bank and as a tax preparer. People have been asking him for years how to get their finances in order. So he figured, why not put the advice all in one place? Thus CleverWithCash was born.

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