Different Kinds of Tax Professionals
Before you start your search, you might be wondering about all the different kinds of tax pros out there or who can do your taxes. Basically, anyone can call himself a tax preparer and file your return for you. There are two types of tax professionals, though, that are probably most appropriate for you and most people: certified public accountants and enrolled agents. Both types can represent you before the IRS in case you get audited.
Certified public accountants or CPAs are accountants who have passed qualifying state exams and met specific education and experience requirements for that title. Not all CPAs are experts on income taxes, though, so when looking for someone to prepare your return, you’ll want to ask about the CPA’s experience in handling individual taxes. A benefit of going with a CPA is these financial pros may be able to help you with other financial situations like estate planning or financial planning in addition to doing your taxes.
Enrolled agent or EA is a tax professional licensed by the IRS through a special enrollment exam or after working for the IRS for five years. EAs may specialize in specific tax areas, so be sure to ask what his or her area of expertise is. The benefit of using an enrolled agent is that these people live and breathe taxes (they’re required to take continuing education courses in taxes every three years), and, generally speaking, may charge less than CPAs.
You have two other main choices for tax preparers—tax attorneys and tax preparation chains—but I don’t believe they make sense here. Tax attorneys are best for handling complex tax disputes and corporate matters, rather than preparing individual returns.
And as for walk-in tax preparation chains like H&R Block or Jackson Hewitt—even in Walmart—the truth is those franchises are designed to move as many tax returns as quickly as possible through the system, using briefly trained, seasonal employees, and there’s limited quality control. A few years ago, Smart Money reported that when the Government Accountability Office went undercover to get their returns done at the big chains, nearly all of the returns were incorrect to some degree. You’re better off going with an accountant or an enrolled agent with whom you can develop a long-term relationship and who will do more than just input your numbers.
Where to Look for a Tax Professional
A referral from a friend or someone else you trust is usually the best way to find someone to do your tax return, but since you don’t know anyone who uses an accountant we’ll need to look for other sources.
Referrals from outside your close circle: Try thinking about other people you might ask: Co-workers, any acquaintances from local clubs or organizations you belong to, your neighbors, and so on. You could also ask your Twitter, Facebook, Google+, LinkedIn or other social media friends and perhaps find a trusted name from a friend of a friend. Don’t worry, we’re still going to vet the tax professional with some questions in a bit.
Yelp: Yelp’s local directory listings include accountants and if you’re lucky you may find ones near you with positive user reviews.
Angie’s List: Another place to look is Angie’s List. The review site is not free (membership fees vary by area. In NY, the services list is $18.25 per year or $2 per month plus a $10 sign-up fee). However, you do get access to local reviews for a wide range of categories—including accountants and financial professionals, and if you sign up for an annual membership, you can cancel for a refund if you don’t find any listings worth your while.
The American Institute of Certified Public Accountants: The AICPA has a directory of CPAs who are also designated personal financial specialists—”a CPA with the powerful combination of extensive tax expertise and comprehensive knowledge of financial planning.”
National Association of Enrolled Agents site: Search for an enrolled agent at the NAEA website. You can filter by specialty (e.g., individual) and also find bilingual enrolled agents.
What to Ask Before You Hire a Tax Professional
Once you’ve gotten a name or two of possible CPAs or enrolled agents, it’s time to make sure this person will do a good job and not screw you. Here are the steps you should take and questions to ask:
Perform a background check: Forbes recently reported schemes where CPAs altered clients’ tax returns without their knowledge to illegally get refunds. To avoid these kinds of criminals, the IRS recommends you check a company’s background at the Better Business Bureau, your state boards of accountancy for any disciplinary actions or licensing issues for a CPA, or the IRS Office of Enrollment for enrolled agents.
Verify qualifications and credentials: The IRS also recommends you make sure the preparer has a Preparer Tax Identification Number (PTIN), a number the government requires paid preparers to have. Also ask what professional organizations the preparer belongs to, how long the person has been doing tax returns, and education background. Ask for references and then call those people to find out if the accountant/EA is reliable and professional.
Look for compatibility: Besides a reputable, qualified tax pro, you also want someone who’s a good fit and makes you feel comfortable. You could ask the references what working with the preparer is like and in your interview with the preparer try to get a feel for his or her style and philosophy. A friend of mine had an accountant who was very aggressive and liberal in suggesting deductions to take (for example, toothpaste as a medical expense, which the IRS does not actually allow). You could ask hypothetical questions about your own tax situation (e.g., deducting for a home office or cable subscription) to see the kind of advice your preparer would give you.
Similarly, find out what the preparer spends most of his or her time doing. A CPA who specializes in taxes for large or medium size businesses may be very knowledgeable, but perhaps less fitting for you than the CPA who spends 60% of the time doing taxes for home businesses and individuals.
Some questions you might ask include:
- When and how can you be reached? Can I contact you after the April due date if necessary?
- What do you charge?
- How are your fees calculated? (e.g., by the hour, project, etc. You want to make sure you know how much you’ll be paying, including for any phone calls.)
- What other services do you offer (if you need, for example, help with financial planning)?
- What records and receipts do you need from me?
- What happens if my return is audited?
- Do you offer electronic filing?
Don’t be afraid to call around and ask for quotes and ask questions. Hiring someone to handle your finances is a big deal and it’s not exactly cheap, so don’t rush it.
Finally, one more important tip: Never, ever sign a blank tax return. Review all the forms before signing it—if you have any questions at all, ask your preparer. Helping you get your taxes done is, after all, what your tax pro is there for.