Selecting the right tax preparer could make the difference between sitting at home enjoying the advantages of a healthy tax refund or sitting in an IRS office, nervously explaining every expense you claimed for the past five years.
There are different types of tax preparation professionals, with varying levels of experience and appropriateness to your personal tax situation, and they are not government-regulated. Anyone can print a business card and call himself a tax preparer.
Here's an overview of the types of tax preparation professionals and the questions to ask in order to choose the one that's right for you.
Types of tax professionals
- Tax preparer from chain or local outlets
- Enrolled agent
- Certified public accountants
- Tax attorney
Tax preparer from chain or local outlets -- The professionals at the national tax preparation chains or similar businesses are trained to some extent, but their training and experience could be at any level. Many of these preparers are paid not much more than minimum wage plus commission, and may be preparing tax returns as a second job. If your return is a fairly simple one, such as a short form, then this could be an appropriately inexpensive option. These preparers can accompany you to a meeting with the Internal Revenue Service if the need arises to help you explain information on your return. However, only enrolled agents, attorneys and CPAs have legal standing to appear in place of a taxpayer at the IRS. If there is any complexity to your return, or tax situations specific to your industry, some of these preparers may not maximize those particular deductions.
Enrolled agent -- An enrolled agent is licensed by the federal government, and will be either a former IRS employee or will have passed a comprehensive IRS exam. If there are questions about your return, an enrolled agent can represent you with the IRS. Many enrolled agents limit their work to a given tax area, however, so you should inquire about an agent's area of expertise. You can locate assistance through the National Association of Enrolled Agents at (800) 424-4339 or at the organization's Web site.
Certified public accountants -- A CPA has passed a state's qualifying exam for accounting, but may or may not be an expert on matters of taxation. The strength of a CPA is that they can configure an overall tax plan, and can guide you through complex financial situations. If you've recently been divorced, retired, opened or closed a new business, or had any other lifestyle changes that significantly impacted your financial situation, a CPA may be your best bet. However, if considering a CPA, be sure to ask about his or her experience in tax matters, and how he or she keeps up with changes in the tax law. Also, a CPA can represent you before the IRS. The American Institute of Certified Public Accountants' Web page has more information.
Tax attorney -- A tax attorney may be your choice if you are interested in sheltering part of your income, or if your situation involves complex corporate matters. A tax attorney may be a specialist on the latest tax laws and in tax disputes, but less qualified in the preparation of actual returns, so inquire about experience and knowledge in this area.