Types of tax preparers

Dear Tax Talk,
I have always done my taxes myself. This year I purchased a rental property and am considering exercising some stock options. Who is the best person to go to for both tax advice and help preparing my return at the end of the year? There are CPAs, tax planners, etc. I want one person who can help me with all of it. Could you please explain some of the different titles that people have and what they mean? Thank you. -- Randy

Dear Randy,
As an individual's taxes become more complex, it's a good idea to get professional help in preparing a tax return. A professional is familiar with the tax rules and advantages available. A tax pro can help you avoid making mistakes that can lead to higher taxes or result in an examination of the return. Although there is a plethora of tax-related reading material, most people have better things to do with their time.

Believe it or not, anyone can prepare an income tax return for a fee. The Internal Revenue Service does not require that the preparer have a license or any formal degree. Although there has been talk of change recently, that's the state of affairs today.

Most people find a return preparer by asking trusted friends for a referral. In fact, in my practice, I have groups of clients that are known to each other. Of course, as a professional I maintain a high degree of confidentiality over the related clients' financial information. Although most people are willing to discuss anything up to embarrassing medical conditions with their friends and acquaintances, no one talks about what they make or have. Therefore, the first thing you look for in a professional is trustworthiness.

An unlicensed preparer is the most common kind of return preparer, commonly found in popular franchise tax operations. For example, H&R Block employs unlicensed, albeit supervised, preparers. The kind of service you receive depends on the individual available when they call your number. If you want a relationship-based tax professional, this service is probably not for you.

The next type of return preparer is an enrolled agent. An enrolled agent is an individual who was proficient enough to pass an IRS-administered exam. An enrolled agent is also required to maintain current competency by completing 24 hours of continuing education annually. Enrolled agents have a good level of tax knowledge, as this is their core business.

A certified public accountant is an individual who, in most states, possesses an advanced degree from an accredited university in the field of accounting. The individual also must pass a nationally administered examination and be licensed in the state. While some knowledge of tax is needed to pass the examination, the focus of the examination includes other aspects such as generally accepted accounting principles. A CPA may or may not have proficiency in taxation, depending on the individual's practice or career path. For example, some CPAs concentrate on governmental accounting. Most CPAs, however, will not profess to have knowledge in an area in which they do not practice.

CPAs are required to renew their licenses periodically depending on their state's requirements. They also must meet a minimum of 40 hours of continuing education annually. Their accounting practices are reviewed periodically to ensure compliance with professional standards.

Both qualified CPAs and enrolled agents have the knowledge to provide tax-planning advice. While cost is always a consideration, your principal criteria should be trust and finding a professional that you can grow with.