The tax deadline is April 15th in most years, unless that date falls on a holiday or weekend. In that case, the tax deadline will fall on the next business day. That is the case this year, with the tax filing deadline landing on April 17th (the 15th was on Sunday, and the 16th was Emancipation Day in Washington, DC). Hopefully the extra two days gave you enough time to finish your taxes and get them filed in time. If not, then I strongly suggest filing a tax extension, otherwise, you may owe the IRS stiff penalties or fees for filing your taxes late. Let’s look at a couple situations and how they might work out for different tax filers.

What Happens if you File Your Taxes Late?

Not filing taxes can result in stiff IRS penalties

There are two classes of tax payers when it comes to late filers. Those who owe the IRS money, and those who are owed money by the IRS. If you are owed money by the IRS, then you don’t have as much to worry about if you file late. You won’t receive your refund in a timely fashion, but you will only have yourself to blame. On the other side of the equation are those who owe the government money. If you file late, you may be subjecting yourself to penalties and fees.

Failure to File and Failure to Pay Penalties

The most important thing you can do is file your taxes, even if you can’t pay them right away. The reason is because the failure to file penalty is usually worse than the failure to pay penalty. Because of this, it’s usually best to file, then work with the IRS to figure out a payment schedule or other arrangement.

Failure to file penalty. The penalty for filing your taxes late is usually 5% of the tax liability, per month, until the taxes are filed. The cap for the failure to file penalty is 25% of your unpaid taxes. The clock starts rolling the day after the due date your return was not filed. If you wait at least 60 days beyond the due date or extended due date, the minimum penalty you will pay is the lesser of $135 or 100% of the unpaid taxes. (Keep in mind, this is the minimum penalty).

Failure to pay penalty. Not paying your taxes can also bring about some hefty penalties and fees. Not paying your taxes by the due date usually results in a penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can accrue to as much as 25 percent of your unpaid taxes.

The IRS lists some additional facts about penalties.

What Happens if You Don’t File Your Taxes?

The failure to file and failure to pay penalties both assume you will pay your taxes within a reasonable time frame. If you are a few months late, chances are good that you will only be subjected to penalties – assuming your tax return checks out fine.

The IRS may take a deeper look into your tax return and determine if you owe underpayment penalties. These include (from least severe to most severe) a Frivolous Return, Negligence, Civil Fraud, and Criminal Fraud (tax evasion). At the low end of the scale, you will be subjected to additional fees on top of the late penalties and fees mentioned above. At the high end of the scale, you could face jail time. Read more about potential penalties for not filing.

File a Tax Deadline Extension if You Will Be Late

If you know you will file your taxes late, then do yourself a favor and file an extension. It is free, and easy to do – just fill out a simple form and filie it electronically, or mail it to the IRS. Once you file your deadline, you have until October 15th to file your taxes. Keep in mind that if you owe money to the IRS, that is due by the April 15th deadline (17th in 2012). You can get around owing additional fees if you pay at least 90% of your tax bill by the April deadline.

Military Members May Be Eligible for a Longer Extension

Some military members may be eligible to extend their tax deadline if they served in a combat zone in the previous or current tax year. Here is an FAQ from the IRS website which covers some of the common questions about this benefit. It’s important to note that this extension will be approved, but you should notate this when you file your taxes. This additional military extension can help you avoid the failure to file and failure to pay penalties, provided you file your tax return by your new tax deadline, as determined by your extension eligibility.

Tax payers who submitted their tax returns early this year may have to wait a little longer than anticipated to receive their tax refund. The IRS recently announced there are delays in tax refunds this year while they put new anti-fraud measures in place on their computer systems. As of right now, the delays are expected to cost tax payers around a week or longer than the scheduled tax refund dates originally announced by the IRS.

Your Tax Refund May Be Late

The new safeguards put in place by the IRS are designed to better screen tax returns filed electronically and help the IRS combat identity theft fraud and other fraudulent tax refund scams. These thefts cost the government hundreds of millions of dollars each year, and can tie up tax refunds for months while the IRS investigates the fraud.

Who is affected by the tax refund delays?

The IRS is currently stating this is a system wide computer update which affects all tax returns filed before January 26th, regardless of who filed, how they filed, or which type of software they use. What this means to the tax payer is that contacting your accountant of software provider won’t do anything to speed up your return, since this is on the IRS side of the house.

As of right now, the delays are only affecting tax payers who filed their tax returns before January 26, 2012. Taxpayers who filed their returns on or after January 26th should still receive their tax return according to the IRS refund schedule.

What to do if your tax refund is delayed

The first thing to verify your tax return was accepted electronically, and verify the date your tax return was accepted by the IRS. If you filed your tax return manually, then you may or may not be affected since it takes awhile for the IRS to enter the returns into the computer (this is done by hand and can take some time depending on the backlog of returns the IRS is working through).

So far, the IRS has stated this only affects people who used E-file during the first week tax returns were being affected. If the date you filed your tax return is among those affected, then there probably isn’t much you can do except wait it out.

The next thing to do is visit the IRS page, Where’s My Refund page, to verify your tax return will be late. You may also be able to check on your refund date via your tax return software, or your accountant may be able to offer assistance in verifying dates.

If your tax return is being delayed for another reason, then it may be a good idea to contact the IRS. It is possible there was an error in your tax return or there may be another problem holding up your refund.

Photo credit: MoneyBlogNewz

If you count yourself among the millions of Americans who file your federal taxes electronically using a software program or IRS E-File, then you are probably wondering when you will receive your federal tax refund. Thankfully, the IRS is one step ahead of you – they release an E-File schedule each year that lists when you will receive your tax refund.

Learn how military members can file taxes for free.

IRS E-File Schedule for Check Refunds and Direct Deposits

The following table was released by the IRS (source) to help tax payers know when they should receive their tax refund. It works like this:

• Use the left hand column to look up the date your tax refund was accepted
• Use the middle or right column to look up when you should receive your refund (depending on how you requested your refund – direct deposit or paper check).

How to use this chart: If you filed your taxes with E-File, you should receive a confirmation that your tax return was accepted by the IRS. This date will go in the left column. If you didn’t file your taxes electronically, then this chart may not be useful for you for two reasons: you won’t have a confirmation date regarding when your tax return was accepted, and paper tax returns are manually entered by IRS employees, so the process takes longer.

You will also note that this chart covers dates beyond the traditional filing date. If you file after April 15, 2012, then you should file a tax extension request. It’s simple, and can potentially save you a lot of money in penalties. Note: Some military members may be eligible for additional tax deadline extensions if they were deployed or served overseas during the tax year.

*Please see note at end of article regarding tax refund delays.

Keep in mind it may take a few days for your financial institution to make your deposit available to you, or it may take several days for the check to arrive in the mail. Keep this in mind when planning to use your tax refund. The IRS states to allow for 5 additional days for the funds to become available to you. In almost all cases a direct deposit will get you your tax refund more quickly. Another interesting point is that the IRS published July 4th as an automatic deposit date, which is a national holiday. You may experience delays if your refund was scheduled to be deposited on that date.

Refund Schedule for Extensions and Amended Tax Returns

The refund schedule should be the same if you filed for a tax extension, however, there is no official schedule for tax refunds for amended tax returns. The above list only includes dates for e-filing an original tax return. Amended tax returns are processed manually, and often take 8-12 weeks to process. If you do not receive an amended tax return refund within 8 weeks after you file it, then you should contact the IRS to check on the status.

How to check the status of your tax return

You should be able to check the status of your tax refund roughly 72 hours after your receive confirmation form the IRS that they have received your tax refund via E-File. The best way to check the status of your federal tax refund is to visit the Where’s My Refund page at the IRS website, or, call 1-800-829-1954, or 1-800-829-4477, or 1-800-829-1040 and inquire about your tax return status with an IRS a customer service representative.

Get a Larger Tax Refund Next Year

If you want a bigger tax refund next year, then there are a few ways you can increase the amount of money the government will give you as a tax refund. One of the easiest ways is by opening a Traditional IRA, which allows you to deduct up to an additional $5,000 on your taxes each year (up to $6,000 if you are age 50 or older!). You can open an IRA in a variety of locations, including banks, brokerage firms, independent advisors, and more. If you are looking for a great place to compare different options, then I recommend visiting the Mint.com IRA Center, where you can compare various IRA options.

Update: IRS Announces Some Tax Refunds Will Be Late

The IRS recently upgraded their computer systems to prevent tax refund fraud. This only affects people who filed before January 26 of this year. Find out if your tax refund will be late.

Do you owe estimated taxes or self-employment taxes? You might actually find that you are responsible for paying estimated taxes, but you aren’t aware of it. Let’s give a quick overview of who owes estimated taxes, a look at the estimated tax schedule, and how you can pay them.

Who owes estimated taxes? If you are a salaried employee or hourly worker, chances are your employer withholds your taxes from your paycheck. But if you have small business income, freelance income, or income from other sources, you may not have had taxes withheld and you may owe estimated taxes. There are other situations when you may owe estimated taxes, so check with a tax professional if you are in doubt. You may also be required to pay self employment tax, which is another issue entirely.

Estimated tax schedule

Do you owe estimated taxes?

Estimated taxes are due 4 times per year. They are often referred to as quarterly estimated taxes, even though the payments are not spaced exactly 4 months apart. Here are the estimated tax deadlines:

• April 15th
• June 15th
• September 15th
• January 15th

Just a note about the estimated tax dates: Notice the January deadline covers the final quarter of the year, and the April 15th deadline is for the first quarter’s income. So many freelancers and self-employed individuals have twice the reason to dislike April 15th – it’s the deadline to file their annual taxes and their first quarter estimated taxes – fun!

Paying estimated taxes

There are two ways to pay estimated taxes. The easiest, fastest, and safest way to pay is online with the IRS Electronic Federal Tax Payment System (EFTPS). Sign up is free and only takes a few minutes. Here is a detailed tutorial for how to enroll for electronic tax payments for your individual or business taxes. Keep in mind that while it only takes a few minutes to sign up for the EFTPS, it takes about 15 days to receive your PIN, so don’t wait until the last minute to sign up! (you can create an account for your personal taxes and a separate account for your business taxes if you have an EIN).

You can also pay estimated taxes by mail with the IRS Form 1040-ES. Download the pdf to calculate your estimated taxes, then fill out one of the vouchers on the form to send along with your estimated tax payment.

For more information about estimated taxes, check out the estimated tax guide on our sister site, or visit these IRS resources:

• Publication 505, Tax Withholding and Estimated Tax
• Estimated Taxes
• Form 1040-ES

Though we’re months away from tax season, it’s a great time to start thinking about how to organize your financial records. What makes tax time so stressful for many people is the fact that they have to do a lot of record keeping in a short amount of time. Instead of procrastinating, get a head start now so you can relieve a ton of stress and make filing your tax return much easier and faster.

Why Should You Keep Financial Records?

How long should you keep financial records?

We typically need to keep fewer records than we do. However, if you understand why you need to keep certain records in the first place, that will help you determine what to keep and what to toss.

Here are 6 reasons why you need to keep records:

1. Identify your sources of income. If you receive income from a variety of sources, having complete records will help you separate business income from non-business income or taxable from non-taxable income.

2. Make an insurance claim. It’s a good idea to keep receipts for large purchases—like jewelry, appliances, electronics, and sporting goods—in the event you need to prove the original purchase price to an insurer or to make a warranty claim.

3. Get a loan. When you apply for a large loan to purchase a home or business, for instance, you must produce several years’ worth of income, banking records, and more.

4. Keep track of your property basis. You need to keep records that show the basis, or cost, of your home so you know if there is a gain or loss when you sell it. The adjusted basis includes the original purchase price plus the cost of any improvements you’ve made to the property. You also need this information to figure depreciation if you rent out part of your home or use it for business purposes. See Publication 530, Tax Information for Homeowners and Publication 551, Basis of Assets for complete details.

5. Keep track of investment gains and losses. You need to keep records that allow you to determine your basis in an investment (such as stocks, bonds, mutual funds, and exchange-traded funds), so you know if there is a gain or loss when you sell it. See Publication 550, Investment Income and Expenses for more information.

6. Support information you submit on your tax return. If you were ever audited by the IRS, you’d be very happy to have all the documents that back up the tax return in question. Taxpayers are responsible for what’s submitted on their tax return—even if it was prepared by an accountant. Being able to quickly produce back up documents for income, tax deductions, and tax credits, can help you avoid having to pay additional tax and penalties.

What Financial Records Should You Keep?

Now that you know the reasons why records are important, here’s a list of basic financial documents you should keep related to your income, expenses, home, and investments:

• Form W-2
• Form 1099
• Form K-1
• Bank statements
• Brokerage statements
• Receipts that document tax deductions or credits (such as charitable contributions, mortgage interest, real estate taxes, child care, and medical expenses—for a complete list refer to Publication 552, Recordkeeping for Individuals)
• Credit card statements that contain tax-related transactions
• Auto mileage logs
• Real estate closing statements
• Receipts that document substantial home improvements
• Insurance records
• Retirement account information

I recommend that you attach all tax-related paperwork to your tax return each year and file it away in a legal-size clasp envelope that’s clearly labeled with the tax year.

Having tax returns on hand can help you (or your accountant) prepare future returns. Additionally, in the event of your death tax return copies would greatly assist the administrator of your estate.

How Long Should You Keep Financial Records?

Since you can amend a tax return for up to 3 years or be audited for up to 6 years (in some cases), most people say that’s enough time to hang on to them. However, I recommend you keep old tax returns forever and here’s why: The IRS says, “You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. “Any provision” of the IRC is pretty broad!

Additionally, the IRS recommends that you keep a copy of every W-2 you receive in your lifetime until you begin receiving Social Security retirement income. Those forms would be the only way to confirm your earnings in a particular year and reconcile an error in your benefits.

Instead of pulling out W-2 forms and keeping them in a separate file, it’s just easier to save your entire tax return. Yes, it takes up more space in your filing cabinet or attic, but for me keeping the full backup is worth it.

Use an Easy Recordkeeping System

I created a step-by-step video that shows you exactly how I organize my personal records. When you sign up at SmartMovesToGrowRich.com it’s one of several information gifts you receive. You’ll also get 2 free chapters from my award-winning book, Money Girl’s Smart Moves to Grow Rich, which is an easy-to-understand guide to personal finance.

Being stress-free at tax time—while everyone else is rushing around—is a great feeling! So take a little time to get organized now and set up a system that will keep you level-headed about taxes for decades to come.

The tax deadline for service people is three months away and all of the buzz about debt ceilings might have you worried. Rest assured, there are still a few good men in Washington looking out for the economic rights of military members. One of the more significant bills that’s still generating buzz is the Disabled Veterans Tax Termination Act.

The Disabled Veterans Tax Termination Act is a bill introduced by Georgia congressman Sanford Bishop in January of 2009. The bill is largely seen as bipartisan; in fact, The Military Officers Association of America, the Disabled American Veterans, and the Military Order of the Purple Heart among others all support the bill and its lobbying efforts. How would this bill, if passed, affect the country’s disabled vets fiscally?

Not only would veterans with a service-connected disability rating lower than 50% receive disability compensation, they’d then be able to receive retired pay. Additionally, the bill would tear down the roadblock that prevents physically disabled members of the armed forces that served fewer than 20 years to retired pay and VA compensation.

Until the DVTTA has its day in Washington, disabled veterans and other military personnel should fully investigate their options as taxpayers. What credits and perks are available to you specifically?

Free Tax Prep. Filing taxes can get quite complicated for those in the service and their families. Filing taxes comes for free for most, but assistance from someone who knows what they’re doing can cost you. Fortunately, there are several places that discount this price. TurboTax, through its Intuit Tax Freedom Project, offers it for free.

Military Spouses Residency Relief Act. The husbands and wives of service people were previously required to officially change their residency to whichever state their spouse was relocated to because of a permanent change of station. Which may not sound like such a big deal until you consider state tax laws and voting, among other issues.

Early IRA Withdrawals. The penalties of taking your retirement savings (401k or IRA) before you’re supposed to can shrink your savings pitifully. However, if you were called to active duty for more than 179 days, were called after 9/11 and withdraw funds while on active duty, no penalties will be counted against you. That said, you should investigate your options thoroughly before withdrawing from your retirement accounts as it could make retirement planning more difficult in the future.

State Tax Relief. Everyone knows that tax laws and credits vary state-to-state; while some states have no income tax for civilian residents, others charge sky-high property taxes, and each state has different benefits pertaining to military personnel and veterans. For instance, Virginia significantly reduces its property tax levied on severely disabled veterans. The link above lists benefits for veterans including tax benefits, loans, and other areas.

With the average tax refund rising to just over $3000, it can seem to many filers that the refund check is a fabulous spring income boost that will help with bills, vacation plans, or that shiny new toy you’ve been eying. But is it really ideal to receive such a large sum back from the government? Don’t forget the fact that the $3000 you happily take back in April is YOUR money, which you have loaned interest-free to the government. So if getting a huge lump sum back is how you make financial ends meet every spring, consider these tips for making the most of your money.

Aim For a Modest Return

In order to reduce your tax return, you will need to reduce the amount of tax withheld from each paycheck. This can feel a little tricky because you do not want to end up owing money at the end of the fiscal year. The IRS provides a withholding calculator that will help you determine how to fill out the W-4 form with your employer. Your goal is to maximize the amount of money you take home every month, and end up with a small tax return—think about $500 or less—at the end of the year. That small return provides you with a safety net in case of miscalculation but does not give the government all the money that could be earning you interest.

Make That Money Work For You

If this will be the first year that you do not plan on a large return, it can be easy to let the extra money in each paycheck simply slip away in thoughtless purchases. If you know that you cannot muster the discipline necessary to put those little amounts of money aside each month, then it might be a good idea to let Uncle Sam hold onto your money for you. However, with the convenience of automatic transfers, even the most savings-averse filer should be able to put aside the money that would have otherwise been collected as tax.

Do some homework to find out where you will be able to earn some interest on that money. ING Direct, Ally, and FNBO Direct are all online banks that offer high yield savings accounts. While the interest from these accounts will not allow you to retire early, they will certainly earn you more money than Uncle Sam will get you for holding onto the same amount of money. With an automatic deduction every month to one of these banks, you won’t even notice the missing money and you’ll be earning, to boot. Here are some more tips on how to use your tax refund.

Don’t Go on Autopilot

After doing the homework to determine how much less you can have withheld, it can be tempting to simply do the same thing next year. But it’s important to reassess your tax circumstances every year, so that you can always maximize your take home pay. That way, you won’t have to wait for April to feel financially fit. You’ll have that “refund” around all the time, earning you interest and giving you a financial cushion. And doesn’t that feel more empowering than a $3000 check from DC?

If you’re expecting a tax refund, you obviously want to get it as quickly as possible. That way, you can put it to work for you sooner rather than later. The fastest and safest way to get your tax refund is to submit your return online, using e-file.

There are three ways to file your tax return electronically:

1. Use your own tax software. Most tax programs include the option to submit your return by e-file.
2. Use a tax preparer. You can find an authorized e-file tax professional by clicking through a ink on the IRS home page at irs.gov and entering your zip code.
3. Use “Free File” at the IRS website. You’ll find it at irs.gov/freefile.

If you e-file and request a direct deposit, you’ll probably receive your funds in less than ten days. But if you submit a paper return and request a direct deposit or a paper check it could take several weeks longer. Plus you run the risk that your tax form(s) or refund check could get lost or stolen. If you don’t receive your refund, it’s important that you make an inquiry about it using the IRS Refund Status Tool.

What To Do With Your Tax Refund

What Should You Do With Your Tax Refund?

Once you receive your refund, there are a gazillion things you can do with it. Taking a vacation or going on a shopping spree immediately come to mind, but I bet you won’t be surprised if I tell you that the best thing you can do with the money is to save it. It might not be as much fun as many other options, but it will certainly go a long way toward improving your personal finances. Here are my recommendations for what to do with your tax refund in the order of priority:

1. Add it to your emergency fund. One of the most important defenses you have against unexpected expenses or the loss of income is a cushy emergency fund equal to at least six months worth of your living expenses. If you don’t have a reserve fund or if it’s not as big as it should be, make sure that’s the number one priority for your tax refund!
2. Purchase health insurance. If you don’t have health insurance, consider using your tax refund to pay premiums for an affordable policy, such as a high-deductible plan. That’s the kind of policy that also gives you the ability to open up a tax-advantaged Health Savings Account.
3. Pay down high-interest debt. If you have at least a few months worth of living expenses saved in an emergency fund, but also have expensive consumer debt like credit cards, retail store cards, or payday loans, use your tax refund to pay them down.
4. Fund an IRA. If you don’t have an Individual Retirement Arrangement (IRA), use your tax refund to open an IRA. You can contribute up to $5,000 to an IRA in 2011, or $6,000 if you’re age 50 or older. Be aware that there are tax penalties for withdrawing money from a retirement account before the age of 59½. So be sure to put money in an IRA only after you’ve established an emergency fund and are sure you won’t need the money.
5. Fund a 529 Education Savings Account. If you’re saving money for your own education or that of a child’s, consider putting your tax refund in a 529 plan, where funds can grow completely tax-free if you spend them on qualified education expenses.

You can even opt to split up your refund and have it automatically deposited into multiple financial accounts, like an IRA and a savings account, using IRS Form 8888. If you just want to have the money sent to one account, simply use the direct deposit line that’s on the regular tax form.

An important tip is that if you consistently get big tax refunds each year, you probably need to adjust your withholding so less tax will be deducted from your paychecks. Use the IRS Withholding Calculator to help you complete a new Form W-4 and submit it to your employer. Remember that it’s not a good idea to use a tax return as a forced savings plan—it’s better to pay yourself first with higher paychecks throughout the year. That way you can save the amount you’d otherwise be paying to the government and make interest on it, instead of loaning it to Uncle Sam for free.

One of the most common questions I hear this time of year is should I hire a tax professional or do my taxes myself? Preparing your own tax return can be a time-consuming and hair-pulling experience. This is why so many people turn to the tax professionals, including me. But a good tax accountant can save you more than brain cells–they can save you money by claiming tax deductions and credits that you may not even know exist.

Should You Hire a Tax Pro?

Tax help is available

So, where do you go for tax help? You can choose between tax preparers, national tax franchises, independent tax firms, CPAs, enrolled agents, and tax attorneys, for example. Here’s an overview of each type of tax professional, so you can determine which one may be best for your situation:

Should You Use a Tax Preparer?

A tax preparer is someone who’s willing to help you complete your tax return for a fee. Anyone can run an ad or print a business card and call themselves a tax preparer. They may or may not have any specialized tax education or experience. So it’s critical that you make sure someone who claims to be a tax preparer is truly qualified or comes highly recommended. Never work with an unknown tax preparer if your tax situation is at all complex due to ownership of a small business, rental property, investments in the stock market, or working outside of the U.S., for example.

Should You Use a Tax Franchise?

The national tax franchises–such as H&R Block or Jackson Hewitt–have thousands of offices in the U.S. They employ tax professionals with varying levels of education and experience. Here’s a tip for working with a tax franchise: Always request to work with the most senior tax preparer in their office. It won’t cost you any more, but should result in you getting to work with a more seasoned professional. If your tax circumstances are somewhat complicated, be sure to ask if they can provide the specialization that you need.

Should You Use an Independent Tax Firm?

Independent tax firms are locally owned accounting businesses that work with individuals and companies. They usually have accountants on staff with a range of tax specialization and experience. If you have a fairly complex tax situation, a local firm may be your best option. In my experience, independent firms can get to know your individual needs and offer a high level of consulting and customer service.

Should You Use a CPA?

Certified public accountants, or CPAs, are professional accountants licensed by the state where they work. They must pass a rigorous exam and usually go on to specialize in a certain area such as business consulting or corporate accounting. They can even represent you before the IRS; but not all CPAs handle tax issues. The American Institute of Certified Public Accountants website at aicpa.org has more information about this profession. You may find CPAs that specialize in taxes at a tax franchise office or at an independent firm.

Should You Use an Enrolled Agent?

Enrolled agents are another type of licensed tax professional. Like CPAs and attorneys, they can represent taxpayers before the IRS in the event of an audit or dispute. They must pass a rigorous exam and are qualified to prepare tax returns for individuals and businesses. They must complete continuing education and adhere to a code of professional conduct. They may work for a tax franchise office or an independent tax firm. You can learn more at naea.org, the website for the National Association of Enrolled Agents.

Should You Use a Tax Attorney?

Tax attorneys are lawyers who have chosen to work exclusively in tax law. They’ve been admitted to their state bar by passing a licensing exam. Tax attorneys are needed for complex legal matters such as disputes that go before the U.S. Tax Court. In special cases they may prepare or assist with extremely complicated tax returns for businesses or individuals.

Questions To Ask a Tax Professional

Before you enlist the services of a tax pro, be sure you fully understand how qualified they are to handle your specific needs. Be sure to read chapter 10 of my new book, Money Girl’s Smart Moves to Grow Rich, for more information about taxes and choosing a pro. Here are eight basic questions you should ask to get to know the company and your preparer’s level of experience:

1. How long have you or your firm prepared tax returns for clients?
2. Who would actually be preparing my tax return?
3. What licenses and experience would my tax preparer have?
4. How do you charge for your services?
5. Do you specialize in any certain tax issues?
6. When could I expect to have my tax return completed?
7. What’s your policy for doing return amendments if changes or corrections are needed in the future?
8. How do you help me if I’m questioned or audited by the IRS?

If a tax preparer won’t sufficiently answer your questions, keep searching for one that makes you feel comfortable. The best tax professionals should also ask you questions to determine if you’re qualified for specific deductions and tax credits to lower your tax bill.

The fee you pay for professional tax help usually depends on the complexity of your return. Some professionals charge by the number of tax forms you require, some charge by the hour, and some bill a flat fee. The bill for one of my tax returns for a simple LLC with a single rental property has been as high as $875 with a large firm and as little as $200 with a local CPA–so don’t be afraid to shop around!

Here are some red flags to watch out for:

• a firm or individual who wants to charge you based on how much refund you’ll receive
• being asked to sign a blank tax return form
• a recommendation that your tax refund be sent somewhere besides directly to your bank account

How to Do a Background Check on a Tax Preparer

After your interview with a potential tax professional, you can do a background check to verify their licensing status and uncover any disciplinary action taken against them. Your state’s board of accountancy will provide information about CPAs. The IRS list of disciplinary actions reveals suspensions, disbarments, and censure taken against CPAs, enrolled agents, and attorneys. And the American Bar Association offers a directory of lawyer disciplinary agencies by state.

How to Choose a Tax Professional

You probably know that you have until April 18 to file taxes this year. If you haven’t started, now’s the time to begin gathering your information and to decide who’s going to do your taxes. If your tax return should be uncomplicated, a qualified tax preparer or tax franchise office may be a fast and inexpensive option for you. But if your tax return has any degree of complexity, they may not have the expertise to maximize potential deductions. Use a CPA or an enrolled agent to manage a complicated situation and help lower your tax liability.

Always consider whether anyone who prepares your tax return will be in business in the future if you need their help to explain information on your return to the IRS. Whether you choose to prepare your own return or hire someone to do it for you, remember that the person ultimately responsible for its accuracy is you! When you sign or submit your return, you are responsible for the accuracy of the information. That’s the law—even when the return is prepared by someone else or with the help of tax software.