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?
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:
- How long have you or your firm prepared tax returns for clients?
- Who would actually be preparing my tax return?
- What licenses and experience would my tax preparer have?
- How do you charge for your services?
- Do you specialize in any certain tax issues?
- When could I expect to have my tax return completed?
- What’s your policy for doing return amendments if changes or corrections are needed in the future?
- 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.