The IRS has a rough estimate that about 60% of taxpayers use paid tax preparers. If you occasionally turn to your preparer for your returns, or it is your first time desiring to work with a professional, you must understand your options so that you may get the right person for the job.
You can choose anyone to prepare your tax return. But if you are looking for a paid service, the preparer must be registered with the tax governing body, the IRS, and have a current preparer tax ID number (PTIN) which is issued annually by the IRS to eligible preparers.
You can place eligible paid preparers into different categories depending on several factors including their education, certifications, and continuing education requirements.
1. Attorneys – They are certified by the state to practice law and can, therefore, give solid tax advice. They also are subject to continuing education requirements and are governed by a code of ethics.
2. CPAs – The certified public accountants are professionals who have passed the regulated CPA exams and been licensed by the respective state boards of accountancy to practice. They are also have continuing education requirements.
3. Enrolled agents – These are trained individuals who have passed a 3-part special enrollment examination thus competent to work in federal taxation. They are licensed by the IRS and have continuing education requirements too.
4. Annual Filling season program participants – They are not attorneys! The individuals in this category have voluntarily completed an IRS program and gotten continuing education.
5. Other preparers with PTIN – These individuals have enough knowledge on preparing returns and have paid the necessary fees to obtain the PTIN. They are not governed by any state, board or the IRS.
The IRS has records of preparers issued with a PTIN. Their registry has a list of attorneys, CPAs, enrolled agents and the annual program participants but not any other preparers with a PTIN. You can look up for a preparer using their zip code, credentials, and distance from you.
If you decide to visit a storefront tax preparer such as Liberty Tax or H&R Block, you will meet many attorneys, CPAs, tax professionals and enrolled agents. It is likely that one will be assigned to you depending on their ability to best handle your case.
N: B- There are enrolled actuaries and enrolled retired plan agents who can serve as preparers as they also have PTINs. The experts are not for consumer returns even if they are registered with the IRS directory.
No doubt, the more qualified the professional, the higher the fees. Fees vary significantly across the country and it all boils down to the nature of your returns, the type of preparer you prefer (i.e., if you have a sole proprietorship that requires Schedule C or you are dealing with complicated investment transactions, or you own a lot of real estate) Most of the preparers charge a flat fee per each return. An example is the average rate for a Form 1040 with Schedule A which is used for itemizing personal deductions goes for about $350. The cost for preparing the basic return with no itemizing deductions is lower.
A general rule is that you will pay the highest service fees to attorneys, followed by CPAs then enrolled agents. The annual filing season program participants and preparers with no special designation charge the least.
Your preparation needs are more important than the fees charged. Money is not the only factor.
Attorneys- they are the best professionals to use if your case may require litigation. Using an attorney is also advised if you have issues that touch on criminal activity because client-attorney privilege will cover you.
CPAs- The tax professionals are trained to handle complex tax matters or special issues such as delinquent returns. They can represent the clients through all the levels of the IRS interaction including appeals and audits. However, you must note that the only limited privilege between a CPA and his/her client works for federal taxes and cannot cover any matters disclosed for return preparation. They also cannot handle any criminal matters and would involve an attorney if any such matters are present.
Annual season program participants can prepare your tax returns but only have limited rights to practice before the IRS. They can only represent a client whose tax return they prepared and only before the customer service representatives and the IRS.
Enrolled agents- They can handle most tax matters and have unlimited representation rights before the IRS thus can represent their client before the IRS for appeals and audits. They also have a limited privilege with the federal tax matters.
Other preparers with PTIN- It goes without saying that they can only prepare returns that do not involve complex tax issues. They cannot represent the client before any governing body but can discuss items with the IRS once consent is given by their client.
Now that you have settled on a type of preparer, there are things to watch out for. First, stay away from anyone with unscrupulous behavior as they can create problems for you. If the IRS notes that your preparer has shady actions, the preparer’s client’s return will be put under review. Here are some tip-offs for suspicious behavior.
Charging based on the size of the tax refund. This is clearly cautioned against in the code of ethics to which preparers must adhere.
Offering to cash the refund checks. Offering to make this refund is outright shady, and preparers are subject to penalties for doing this.
Not asking for documentation when they prepare returns.
Guaranteeing refunds or no tax liability without checking the taxpayer’s situation.
If you feel that a tax preparer may be suspicious or shady, or you have any concerns, confirm with the Better Business Bureau to check if there are registered complaints against a particular preparer. You may also check for CPAs with the state Board of Accountancy and for attorneys; the state bar of Association.
If you have chosen a preparer and your return is ready, make sure you check the preparer’s PTIN and other relevant information on the copy you receive. If you don’t see any or there’s a problem, it’s never too late to see another preparer.
Before you head out to the tax pro you have selected, See the 10 steps to Tax preparation and the retirement plan tax prep checklist
The IRS estimates that 60% of individuals use paid preparers to file their returns. If you are among these people, it is vital to get started as soon as possible so you can enjoy a successful tax return experience. This year, the 2016 federal tax returns are due on April 17, 2017. Even with any delays, you will need to prepare on time.
Your preparer should take information from you or give you a questionnaire to complete. You will need to collect and organize your information either way. Here are 10 steps to take before rushing to your tax preparer.
1. Choose a preparer
If you have not already selected a preparer, it is time to do so. One of the best ways to find a reliable preparer is to ask for referrals from your friends, advisors, and family. Check that the person you choose has a PTIN showing that are allowed to prepare federal income tax returns. Also, inquire about the fees which are largely dependent on a number of factors as earlier discussed. Stay away from those who may ask for a percentage of your refund. You may check on the IRS for other tips on how to choose a preparer.
2. Schedule an appointment with your Preparer
You should meet your preparer as soon as possible so you can start working on your returns. Even if there is an extension on the deadline, your interests are to begin and finish the process promptly. It also helps you get your refund promptly as well. If you wait too long, you might miss a tax preparer which only spells disaster for you as everyone rushes to meet the deadline.
3. Gather your information returns
All the information that you have received since January regarding your returns should be in place. For every form, verify that the information recorded matches your own. These are some of the common forms;
Form W-2- applies if you have a job
Form SSA- 1099- this applies for those who received Social Security benefits
#various 1099s that report income such as dividends (1099-D) and interest (1099-INT)
#New form 1095-A that reports any information that notes purchased health coverage
4. Get all your receipts together
The ones you need depend on whether you decide to itemize your personal deductions instead of claiming the usual standard deductions. You can choose to items because it generates more write-off. To know this, you must compare the itemized deductions and standard deductions.
Use a system to get receipts together for itemizing. Look for receipts concerning medical costs that are not covered by a health plan or insurance.
If you have a business or expenses to report on Schedule C, you will need to show your books and records.
5. Gather all the records for charitable contributions
If you had made any donations to charity or itemized your deductions, you need to have specific records to claim your write-off. For sums above $250, you need a written acknowledgment from the charity organization you donated to stating the amount you gifted and that you received nothing else in return. Contact charity if you lack this acknowledgment because you’ll need it when handing in your returns. Find out more about information regarding this on the IRS Publication 1771.
6. Brace Yourself for tax law changes
You are no expert on the law, but it might help to learn a bit about the new tax laws lest you are caught off-guard. The individual healthcare mandate has brought in plenty of changes such as forms for claiming the premium tax credit for the people who bought coverage through an exchange and also for figuring the shared responsibility payment for the eligible individuals who did not carry coverage and, therefore, do not qualify for an exemption. Read on this and more on the IRS website.
7. Make a list of personal information
You know your SSN but do you know the number for all your dependents? Just note this down and probably jot down other information like addresses of vacation homes and property, dates you moved and any information on property to sold or bought. You need this information to complete your return so get on it to save some time and headache when the deadline fast approaches.
8. See whether you can get a filing extension
After going through your records, you may realize you need more time to complete all those tasks. You can request a filing extension to avoid any late-filing penalty. Be sure to pay what you think you might owe to avoid late-payment penalty as well.
9. Decide what to do with your refund
If you are anticipating a refund, you have several things you want the government to do:
Apply all or some of your refund to your tax bill scheduled for the next return. It will be used for estimated taxes, eliminating or reducing the first installment of estimated taxes.
Deposit the fund to your checking or savings account or send you a check.
Directly send some or all of your refund money to some types of accounts such as the health savings account, IRAs, education savings account, etc. Or to buy the U.S savings bond through the Treasury.
You can split your money among the deposit choices you have by filling and completing the Form 888. Tell your preparer what you want to do. You may note the year to which your payment applies if you want the funds used for your current year.
10. Find a copy of last year’s return
If you still go to your old preparer, they may still have your old return. If you choose a new preparer, you may want to look for your return as it serves as a reminder of some items you don’t want to overlook.
Here is an example;
Payors of interest and dividends. Unless you sold stocks or closed bank accounts, you will need this information.
Charities- If you did not receive acknowledgement for your donation, you will need proof of this. See last year’s return for a list of organizations you donated to and check whether you made similar gifts this year.
The bottom line:
You should start your prep work early enough to avoid last minute rush to file your return. If you have been gathering and organizing your receipts all year, you’ll have no trouble getting your taxes filed on time. There are apps like Shoeboxed and Expensify that make this work even easier for you. The IRS accepts such receipts. Whether you choose to do the tax returns yourself or have a paid preparer to do it for you, you will save time and expense if you have proper documentation and organized records.
Most of all, following these 10 steps will ensure that you don’t miss out on any tax benefits. If you are looking to outsource accounting services please reach out to us.