You need your taxes done, you don’t want to do them yourself, and now you’re faced with choosing a tax preparer that you hope will do a good job, help you pay the least amount of taxes by law, and keep you out of trouble with the IRS. But how do you choose the best person when you don’t know anything about taxes?
Here are some tips and questions to consider when choosing your tax preparer.
The Gold Standard
The first thing to ask a tax preparer is what certifications they hold. The CPA is the gold standard, but not all CPAs offer tax preparation.
The size of the CPA firm has very little to do with quality. However, the larger the firm is, the higher the price is, usually due to quality-control issues and layers of management. I’ve seen some excellent one-CPA and two-CPA offices; in fact, I’ve seen many industry awards go to small CPA firms recognizing their excellent tax work.
Each CPA is licensed by their state’s board of accountancy, so make sure the CPA you hire can practice in the state you need tax expertise and is holding a current active license.
An alternative would be an Enrolled Agent (EA). Enrolled Agents are federally licensed tax practitioners who specialize in taxation and have unlimited rights to represent clients before the IRS. Whereas a CPA is tested in a wide range of accounting, auditing and tax knowledge, the EA exam is not as difficult as the CPA exam and is limited in scope to tax problems. The greatest value in EAs is their ability to represent their clients to the IRS if needed, and they are often a lower-cost alternative to a CPA.
If your tax preparer does not have either of these certifications, you can expect to pay much less, but you might not be getting the highest-quality job.
It’s a fair question to ask your tax preparer roughly how many business returns they do each year. A good tax preparer making their sole living from taxes should be doing at least 100 total returns a year, and most solid full-time tax preparers will do 300 to 500 per year, depending on how complicated each return is and how many support staff they have. About a third of these will be business returns.
Tax preparation and the laws and deductions behind it change every single year. In any one year, hundreds of new pieces of legislation can affect your income tax return, so it’s imperative that you hire someone who has completed a tax update course within the last six months.
The services you need should line up with the services that the firm offers. Here are some questions to think about when considering what type of help you need:
- Do you need to e-file?
- Do you need to meet them in person?
- Can you do everything virtually?
- What security and privacy do they provide for your data?
- Are they familiar with your specific tax needs? Perhaps you have a farm, sold a house in another state or have a non-profit; find out if they can handle your circumstances.
- Will they provide you with options and the related risks of those options?
- Will they explain your return?
- Do you need help adjusting your tax payments for next year? (If you incurred penalties, you may be able to avoid them next year.)
- Do you need help with tax planning?
- Do you need advice related to your retirement account?
- Do you want them to represent you if the IRS contacts you?
Make sure each item you need is offered by the tax preparer you choose.
Fees and Timing
Your preparation fees for tax returns will vary depending on how complex your situation is. Most tax preparers charge a flat fee to prepare your return, and some still charge by the hour.
The later it is in tax season, the longer it will take to receive your completed return. Get your documents collected early, unless you love procrastinating and waiting until the last minute. But please be nice: A typical tax accountant has only about 10 weeks of each year to complete a year’s worth of work, so try your best not to pester or rush them. They are working 12-hour days and doing the best they can.
Chemistry is also important when choosing a tax preparer. Even if everything else lines up, if your gut feeling is giving you indigestion, look for someone else. In the case of chemistry, your gut is always right.
Here’s a quick list of questions to ask when meeting with a tax preparer:
- What tax credentials do you have?
- How many returns do you do each year?
- What courses have you taken recently?
- What services do you offer in regard to tax prep (i.e. e-filing, preparing 2015 estimates, etc.)?
- What is your fee? How do you charge?
- How long will my return take once you have all the paperwork you need?
While software solutions like TurboTax and financial software like QuickBooks definitely facilitate and expedite the tax-filing process, business owners and freelancers may need the help of a tax professional to navigate more complicated tax filings. By following this easy guide and performing your due diligence, you can find the perfect tax preparer for you and your business.
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