How to pick a tax pro who's right for you
Need help filing your return? Make sure you get an expert who's perfect for your situation.
Individual taxpayers find tax return preparation so confusing that many pay a professional to do it for them. But which tax preparer should you choose?
Different types of tax preparation professionals have varying degrees of training and experience. A few states regulate tax preparers. The Internal Revenue Service also has begun a system to track and, in some cases, test tax preparers.
But it is the responsibility of taxpayers to determine which tax pro is best for their personal tax situations.
IRS regulations in force
For years, anyone who wanted to prepare taxes could simply hang out a shingle and start filling out tax returns for a fee. Such operations include accountants, mom-and-pop tax preparation firms, and storefronts that pop up in January and close in April.
While a few states have regulated tax preparers, there was no federal oversight in place.
In 2011, the IRS instituted a system to track every person who is paid to prepare and file returns and make sure they have at least a basic level of tax competence. Under the IRS proposal, attorneys, CPAs and enrolled agents would be exempt from a tax competency testing requirement because these professionals already must meet continuing education standards set by their licensing organizations.
The IRS is still issuing each tax preparer an identification number, or PTIN, but its plan to require most independent tax preparers to pass a competency exam is on hold.
Chain tax franchises
Tax preparation chains are popular choices for many taxpayers. The employee-preparers at each franchise office receive some preseason tax training. They also use tax software to help guide them and their clients through returns.
These tax preparation outlets work well for individuals who have relatively simple returns, want quick turnaround (and typically early refunds) and don't want to pay as much as other tax professionals charge.
If, however, your tax situation is more complex -- for example, you own your own business or you have several types of income -- you might want to find a tax preparer who specializes in your type of filing situation.
An enrolled agent, or EA, is licensed by the federal government and is authorized to appear in place of a taxpayer at any IRS meeting or hearing.
Many EAs are former IRS employees. Agents who did not work for Uncle Sam will have passed a comprehensive IRS exam.
EAs also must complete regular continuing education courses to maintain their status.
Many enrolled agents specialize in specific tax areas, so ask about an agent's area of expertise before you hire him or her.
Certified public accountant
A certified public accountant, or CPA, has passed a state's qualifying accounting exam, but may not be an expert on tax matters.
A CPA can help you create an overall tax plan and guide you through complex financial situations. A CPA may be your best choice if you've recently been divorced, retired, opened or closed a business or had any other lifestyle changes that significantly affected your finances.
If, however, you are primarily interested in tax preparation help, ask the CPA about his or her tax filing experience.
Like an enrolled agent, a CPA can represent you before the IRS. The American Institute of Certified Public Accountants' website offers guidance on finding a CPA.
You can find an EA by using the online search tool on the National Association of Enrolled Agents' website.
A tax attorney doesn't necessarily specialize in filing tax returns. Rather, you will want a tax attorney's services when you encounter a legal issue regarding your taxes.
If you are being audited, owe back taxes or face criminal tax charges, you definitely want to hire a tax attorney. As your counsel, an attorney can represent you before the IRS as well as in court.
In less-extreme situations, an attorney can help you create legal tax shelters or work through more complex tax concerns, such as corporate taxes.
Many tax attorneys specialize in certain tax areas, so be sure the one you choose is familiar with your particular needs.
Check with your local bar association chapter for information on tax attorneys in your area.
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