According to the Internal Revenue Service (IRS), a little more than half of American taxpayers use a paid tax preparer. Here are some suggestions for choosing the best tax expert for your situation, whether you frequently use one to prepare your returns or just recently made the decision to do so.
Different Tax Return Experts
Anyone can prepare your tax return, including your uncle, a neighbor, or your close friend. However, if you pay for this service, the provider needs to be registered with the IRS and have a valid preparer tax identification number (PTIN), a number that the IRS issues to approved preparers on an annual basis.
Paid preparers can be put into the following groups based on their training, certifications from professional organizations, and requirements for continuing education:
- Lawyers: These experts have a law degree and have passed the bar exam. They must adhere to a code of ethics and maintain continuing education requirements in order to maintain their legal practice licenses from states or state bar associations.
- CPAs: Certified public accountants are required to complete ongoing education requirements and have passed the Unified CPA Examination in order to obtain a license from state boards of accountancy. Tax planning and preparation are areas of expertise for some CPAs.
- Enrolled agents: Enrolled agents (EAs) are certified by the IRS and have passed a three-part Special Enrollment Test proving their proficiency in federal taxation. Every three years, they must complete 72 hours of continuing education.
- Participants in the annual filing season program:
- The tax return preparers who are not enrolled agents, CPAs, or attorneys are recognized by this voluntary scheme. In order to be prepared for a certain tax year, participants have successfully completed an IRS program and acquired continuous education.
- PTIN owners: Although these people have valid PTINs, they do not have any professional certifications or take part in the program for the annual filing season. They are not governed by any professional body, state agency, or IRS, and they are not permitted to represent clients before the IRS (except for returns that they prepared and filed before Dec. 31, 2015).
The IRS maintains a list of PTIN-holding preparers online. Attorneys, CPAs, enrolled agents, and participants in the yearly filing season program are included, however PTIN-only preparers are not. You can look for a tax preparer based on their credentials, ZIP code, and proximity to you—or you can check their credentials.
Other preparers with PTINs include registered actuaries and representatives for retirement plans. Despite the fact that they are listed in the IRS directory, these professionals normally don’t prepare individual tax returns.
How Much Does A Tax Preparer Cost?
You might anticipate paying extra if the person preparing your return has more credentials. Attorneys typically charge the highest fees, followed by CPAs, enrolled agents, and finally other professionals. Participants in annual filing season programs and preparers without any unique designations charge the least.
If you make less than $73,000 a year, you can use the IRS’s Free File Program to fill out and send in your federal tax return online for free.
Depending on the type of preparer and the complexity of your return, such as if you run a sole proprietorship that needs a Schedule C, have complicated financial activities, or own many rental properties, fees can vary widely across the nation.
The majority of tax preparers impose a set price per return. The average cost in 2020 to prepare Form 1040 with the standard deduction was $220, and $323 when itemizing on Schedule A, according to the National Society of Accountants. When you add schedules, your payment amount rises. For Schedule B, $192 for Schedule C, $118 for Schedule D, and $145 for Schedule E, the average price in 2020 was $42.
Which Type of Tax Preparer Is the Best?
Expense is just one consideration when selecting a preparation. Other factors may be crucial for you, depending on your circumstances. This includes deciding if you want the preparer to speak on your behalf if the IRS has any concerns about your return. These are some broad recommendations for each category of preparation.
- Attorneys: For cutting-edge tax concerns that could need litigation, it is better to engage an attorney. Because disclosures made by a client to an attorney are typically privileged, it is also advisable to use legal counsel if any matters could implicate criminal behavior.
- CPAs: CPAs are qualified to manage intricate tax situations as well as unique problems like past-due returns. They represent clients in all interactions with the IRS, including audits and internal appeals. The privilege does not apply to information revealed for the preparation of federal tax returns, and it is solely limited to a CPA and a client. A CPA may bring in an attorney for additional disclosure if they have any suspicions about criminal matters.
- Enrolled agents: These experts are capable of handling most tax-related issues. They can represent clients during IRS audits and appeals and have unrestricted representation powers before the IRS. They too have a little degree of privilege with regard to federal tax matters.
- Participants in the annual season program: Although they have very few legal privileges to represent you before the IRS, these people can prepare your tax return. They are only permitted to speak on behalf of a client when interacting with IRS employees and customer care agents.
- PTIN Holders: For straightforward returns without complicated tax difficulties, any other preparer with a PTIN may be suitable. A client can authorize them to speak with the IRS about things on the return, but they are not permitted to represent the taxpayer in IRS audits or appeals. Steer clear of any tax preparer who wants to base their fees on the sum of your refund.
Once you’ve chosen the kind of preparer you’ll employ, be sure to avoid anyone who seems dishonest or who might cause you trouble. The returns of a preparer’s clients may be given a special review by the IRS if it has reason to believe that they are acting dishonestly. Some indications of dubious behavior
- The code of ethics that tax preparers are required to follow is broken when fees are set based on the size of a tax refund.
- Offer to cash your refund check:
- This carries consequences for preparers, and even expressing an interest in handling refund checks raises suspicion.
- Preparing returns without requesting proof of identity:
- It is forbidden to approve a return without examining the supporting materials.
- Guaranteeing reimbursements or, at the very least, no tax liabilities without taking into account your specific circumstances.
- Be sure your tax preparer signs on the dotted line because it is required by law for paid tax preparers to sign your form and supply their PTIN. Additionally, read the tax return carefully before signing it, and never sign a return that is blank or incomplete. To guarantee that your return goes to the correct location (i.e., your bank account and not the preparer’s), pay special attention to the routing and bank account numbers.
If you have any worries, contact the Better Business Bureau to find out if there have been any complaints made about a specific preparer.
Also, check with the state board of accountancy and the state bar association to see if there have been any complaints against CPAs or lawyers.
You can file a complaint with the IRS if a tax preparer did something wrong or used dishonest ways to do your taxes.
Can you file a complaint against a tax preparer?
Yes. The Federal Revenue Agency (IRS) asserts that “the majority of tax return preparers are qualified, trustworthy, and honest. The IRS is committed to looking into inappropriate behavior, though. If a tax return preparer engages in misconduct, you can report them for:
- Making a tax filing without your knowledge or permission
- Altering the paperwork for your tax return
- Using a false filing status in order to receive a greater refund
- Using fictitious dependents or exemptions to increase your refund
- Modifying income to obtain a greater refund
- Creating fictitious receipts in order to increase your refund
- You misplaced your refund
Who has the authority to create tax returns?
Anyone can assist you in filing your taxes. But they must be registered with the IRS and have a valid preparer tax identification number (PTIN) if you’re paying someone for this service. Lawyers, CPAs, and enrolled agents are all granted unrestricted representation rights before the IRS. So, they are qualified to represent you in all tax matters, such as appeals, problems with payment or collection, and audits.
Participants in the annual filing season programs and PTIN holders without any kind of professional qualifications can prepare your taxes. In relation to audits, appeals, and collection matters, they do, however, have some limited representation rights.
Do tax preparers need to e-file returns?
Yes. Since the IRS began processing electronic tax returns in the 1980s, more than 1.2 billion individual tax returns have been filed. It’s the safest and most accurate way to file, according to the IRS. 1819 Paid preparers who reasonably anticipate filing more than 11 returns in a calendar year are obliged to file electronically under Internal Tax Code Section 6011(e)(3). It may be a warning sign that a tax preparer doesn’t prepare many tax returns if they do not offer electronic filing (i.e., they have limited experience).
Be careful to gather all the information you require and establish a list of your questions prior to meeting with your preparer in order to make the most of their time and minimize your bill.
When your return is prepared by a preparer and is ready for submission, make sure the preparer’s PTIN and signature are included. You should also get a copy for your records.