I don’t prepare my own taxes. That wasn’t always the case. When we first started the law firm, I did taxes for the business and our family. And when we bought our rental property, I took that on, too. And then we had a kid. And another kid. And a third. At some point, juggling it all was too much, and I realized that it was a better use of my time to pay someone else to do our books and prepare our taxes. But finding that person? That was the challenge.
I wasn’t alone in my search for a tax preparer: According to the Internal Revenue Service (IRS), for the year 2013 – that’s pre-Tax Cuts and Jobs Act (TCJA) – about 57% of taxpayers used a professional tax preparer (downloads as a PDF). And according to those same statistics, even as the Tax Code gets more complicated, the number of paid tax preparers is decreasing. With those odds, finding the right fit can take time and patience.
Our initial tax preparer was fine, but there were some gaps in communication. One of those gaps – while I was on maternity leave – resulted in an eventual audit. Our next tax preparer came highly recommended but ended up pleading to a count of felony tax fraud (I’m not kidding). My point: You might not get it right at first, and that’s okay.
Over the years, I’ve sorted out what works. We’ve had a relationship with our current tax preparer for a bit, and he gets me – from my control-freak tendencies to my geeky tax humor. But I don’t regret my prior goofs because I learned from those mistakes. And here’s the secret: You’re the only one who can find the perfect tax preparer for you.
That said, I can offer a few tips. The key, as with hiring any professional, is to ask questions. Ideally, you’d establish a relationship – remember, you’re trusting this person with your personal and financial details. But whether you are looking for a long-term tax professional or just someone you meet with once a year to prepare your form 1040, there are some common truths. Here’s what you should look for:
Your tax preparer should have a PTIN (Preparer Tax Identification Number). Anyone who prepares federal tax returns for compensation must have a valid 2019 PTIN before preparing returns. The PTIN and the preparer’s signature need to appear on your tax return. Without a PTIN, a tax preparer is not allowed to prepare your return – this isn’t something you want to find out at the end. Ask in advance, or you can check out PTIN qualifications on your own by using the Internal Revenue Service (IRS) online PTIN directory.
Your tax preparer should be knowledgeable and competent. When you’re doing your homework, don’t be fooled by credentials. Additional letters following a name on a business card don’t necessarily mean that a tax professional is more qualified, but it can mean that the person has passed certain tests or has specific tax training. Before you hire, do your homework or ask directly about qualifications. Here’s a quick guide to help you sort out some of the credentials:
- A certified financial planner (CFP) is a designation for financial planners given by the Certified Financial Planner Board of Standards. A CFP must meet certain education requirements, pass an exam, have experience in the field, pass fitness standards and pay a certification fee: the coursework and exam do have tax and tax planning components as determined by the Board. A CFP may have tax experience, but tax may not necessarily be the focus of their practice. For more, check out the CFP Board.
- A certified public accountant (CPA) is certified by the state to act as a public accountant. All CPAs are accountants, but not all accountants are CPAs. To qualify, candidates are required to pass an exam. Most states also require an ethics exam or course as well as continuing education credits. A CPA may specialize in tax but not necessarily: there’s a wide range of CPA services including accounting, auditing, financial planning, technology consulting and business valuation. For more, check out the American Institute of Certified Public Accountants (AICPA).
- An Enrolled Agent (EA) is a federally-licensed tax practitioner who may represent taxpayers before the IRS when it comes to collections, audits, and appeals. In addition to a comprehensive exam process, the IRS requires enrolled agents to complete 72 hours of continuing education every three years to maintain active status. For more, check out the NAEA.
- Annual Filing Season Program (AFSP)participants are return preparers who have met voluntary requirements established by IRS. Those requirements include 18 hours of continuing education, including a six-hour federal tax law refresher course with an exam. AFSP participants who have met the criteria receive a Record of Completion and are included in a public database of return preparers. For more, check out the IRS website.
- A JD (Juris Doctor) is a law degree: having a JD means that you’ve graduated from law school but does not always mean you’ve passed the bar exam. An LLM (Master of Laws) is a second law degree. An LLM could be focused on taxation but may not be (you could have an LLM in Trial Advocacy, for example). As with a CPA, JD candidates are required to pass an exam, an ethics exam, and take continuing education credits. Having a law degree or two doesn’t necessarily mean that an attorney prepares returns or has tax experience since you don’t have to demonstrate competence in tax law to pass the bar in most states.
- A Volunteer Income Tax Assistance (VITA) volunteer is trained by the IRS to prepare basic returns.
- Other accountants, bookkeepers, and tax preparers may not have formal credentials, but that doesn’t mean you shouldn’t give them a look. But ask first: what do you do and why are you qualified to do it?
Your tax preparer should be able to prepare a tax return for your specific circumstances. Not all tax returns are the same. Some tax preparers can do a basic form 1040 in their sleep. Others are fluent in Schedules C (business) or E (rentals). Some may focus on pass-through entities, tax-exempt organizations or fiduciary returns. There are as many variations as there are schedules and forms. It’s not uncommon for tax preparers – especially those that have been around for a while – to have a pretty broad scope of knowledge. But nobody can do it all and don’t trust anyone who tells you otherwise. If you have special circumstances because of your financial investments, occupation or residency, find a tax preparer who has experience with your specific situation. The best way to find out? Ask in advance.
Your tax preparer should be up-to-date. The scope of changes under the recent round of tax reform was breathtaking. Your tax preparer should be aware of these changes and how they might affect you. However, since tax law is continuously evolving – from extenders to Regs to case law – your tax preparer should be engaged in regular tax education to stay informed. If your preparer has certain credentials, like an EA or CPA, those education courses are mandatory; if not, ask how your tax preparer is staying up-to-date.
Your tax preparer should know the requirements of the states and localities where you are required to file. When it comes to federal income taxes, there are no boundaries. But that’s not true when it comes to states and localities. Your state or locality may have quirky filing requirements, especially for business owners. It can get even more complicated if you’ve moved from state to state during the year or if you live in one state and work in another. You may also need special guidance if you own a business or real estate in another state, or if you are the beneficiary of a trust or estate in another state. Ask upfront to make sure that your tax preparer knows – and can handle – those filing requirements.
Your tax preparer’s fee structure should be clear. Prices may vary based on the complexity of your return, whether you require additional schedules, supporting forms, or out of the ordinary items (like Roth IRA conversions). Some preparers offer reduced costs for federal return but charge more for state and local returns: make sure you understand the total cost, including extras, in advance. Be wary of preparers who won’t talk about pricing, including the cost to fix any mistakes or to file electronically. A tax preparer should not charge you extra for a copy of your return when the return is prepared (though charging you extra for additional copies may be appropriate).
Your tax preparer should be upfront about the time to prepare and deliver your tax return. It’s not unreasonable to leave your preparer’s office without a copy of your completed return; assembly may be required. However, you should receive a complete copy of your return within a reasonable amount of time following your appointment. If your preparer can’t offer a window of time to expect the copy, it might be indicative of a time management problem. If your preparer can’t promise you a copy at all, run, don’t walk away: you will need a copy for your records.
Your tax preparer should be organized. You shouldn’t expect your tax preparer to Kon-Mari their office in their spare time, but a sense of organization is important. A reputable tax preparer should be able to explain what you need to provide in advance, including any information for special schedules, forms or circumstances. If a preparer isn’t inclined to do due diligence, it should give you pause about what other corners the preparer might be willing to cut later. And if your preparer continually asks for more information (as opposed to the occasionally overlooked information form or a request for clarification), it may be a sign that your tax preparer is overwhelmed.
Your tax preparer should be reachable after tax season is over. I’m not a fan of tax preparers with shops that pop up on street corners during tax season and then go missing for half the year without contact information. Clients often receive requests from taxing authorities for additional information in October or November: make sure that you know how to contact the tax preparer after your return has been filed. If your tax preparer won’t be around, consider taking your business elsewhere.
Your tax preparer should know how to deal with an exam or an audit. Nobody wants to think about an audit when filing a return. But you need to ask: find out how the tax preparer handles examinations or audits. Remember that attorneys, CPAs, and Enrolled Agents are the only tax professionals with unlimited representation rights, meaning they can represent their clients on any matters including audits, payment/collection issues, and appeals in front of the IRS, while AFSP participants have limited representation rights, meaning they can represent clients whose returns they prepared and signed, but only before revenue agents, customer service representatives, and similar IRS employees, including the Taxpayer Advocate Service. PTIN holders without an Annual Filing Season Program – Record of Completion or other professional credential are not allowed to represent clients before the IRS for returns prepared and signed after December 31, 2015. That doesn’t have to be a deal-breaker since there are tax professionals like me who focus on audits if you need to hire someone later, but you should understand the scope of services and representation before you agree to become a client.
So how do you figure all of this out? Research. Choosing a good tax preparer does require a little bit of effort on your part, but it’s worth it. And admit it: you asked at least these many questions when looking for a hairdresser or pediatrician. Just as you wouldn’t dream of going to a different primary care doctor every year or skipping from one auto mechanic to the next, there’s an advantage to constancy. The goal of hiring a tax preparer isn’t to find someone who can merely fill out a form this year but to establish a professional relationship – and that means one where you feel comfortable. A good tax preparer wants that, too, and won’t mind answering your questions.