Selecting a Tax Preparer

What’s The Best Way To Pick A Tax Preparer?

Selecting a tax preparer can be a difficult task.

  • Who do you pick?
  • What makes one person more or less qualified than someone else? 
  • Is your tax return simple or complex?
  • How much should you pay for a tax return? 
  • Is this a one-time tax return, or are you looking for someone for all future years?

When the new tax year comes, everybody has questions.  Is this the year you prepare your taxes using your home computer software?  Do use the person you met last year?  Do you ask your neighbors for advice?

These questions are difficult because most people don’t pick a tax new preparer each year.  They either prepare their own tax returns or they visit the same person that prepared it last year.  However, there are many reasons why people switch to a new income tax preparer.  For example, people move to a new town, tax preparers retire, or people quit filing their own returns because their return has become complex or time consuming.

So, here’s a short list of items to consider before you select your next tax preparer.

Who’s better a national chain, an Enrolled Agent , or a CPA?

The short answer to this question is:  It depends.

Tax preparers come in many forms.  There are unregulated preparers, national chains, enrolled agents and CPAs.  All preparers who charge for their service must be registered with the IRS and obtain a PTIN (Preparer Tax Identification Number) each year.  The paid preparers are required to include their PTIN on your return.  This registration is for the benefit of the IRS to identify abusive patterns by preparers and is no indication of the preparer’s skills or experience.

As in any industry, you can find a range of skills for preparers in any type of organization.  The main differentiation is the level of continuing skill development that the preparers undertake each year.

  • Local (unregulated) preparers are not required to seek continuing education. (Again, all paid preparers are Registered, but not all preparers are Regulated.)  Therefore, if you choose an unregulated preparer, are you comfortable that the person understands the current changes in the tax law?  You probably assume that the firm will have current software programs to prepare tax forms, but using new software does not guarantee that an accurate tax return will be generated automatically.  Unregulated preparers tend to focus on offering fast returns, refund anticipation loans (immediate refunds), and processing easy tax returns for busy taxpayers.
  • Chain franchises typically require each preparer to attend a basic training course for new preparers or an “update course” for returning staff.  While the franchise company probably will assure you of completing a tax return with “no errors,” it will not assure you of a tax return that minimizes your tax liability.  This issue becomes important when you have a tax matter that can be filed using several alternative methods.  For example there are many rules that grant or limit your ability to claim a dependent to reduce your tax liability.  If the preparer does not ask sufficient questions, you may not know that an aging parent who lives in another house may qualify as your dependent
  • An Enrolled Agent is a tax preparer who is regulated by the IRS.  These individuals must attend a minimum number of tax courses each year, so they tend to have current knowledge of the tax rules before the new tax season begins.  Enrolled Agents may or may not understand complex accounting rules because they are focused on tax rules.  This can be an issue if you are receiving information from a family business, you want your business return and personal returns to reconcile, or you want advice on starting a business.  Enrolled Agents are authorized to represent you before the IRS in an audit, and this is one of the privileges of being an enrolled agent.
  • A CPA is licensed by each state and also by a national organization (the AICPA) and must complete 40 hours of continuing education each year.  The CPA must complete rigorous courses in accounting and income tax regulations before taking the national Uniform Exam for Certified Public Accountants.  Also, all CPAs must complete a standard set of related University business courses so that they understand the interactions between business operations, financial statements, and tax rules.  CPAs are qualified to complete all tax returns and also to represent you before the IRS.  In addition, most CPAs can help you manage your financials affairs, build retirement resources, and identify critical issues in starting a new business.
  • The final category is a “catch-all” group that includes Board Certified Tax Attorneys, Certified Financial Planners, and others who may be regulated by their local associations.  While these preparers may be required to attend continuing education, it is up to you to verify that these preparers are able to address your unique tax needs and are focused on your priorities.  We won’t fall into the typical statement that Tax Attorneys are focused on Estate Planning and Financial Planners are focused on offering insurance and savings devices as their primary goal.  However, always be ready to ask about such issues before you agree to engage any preparer.

Who do you pick? 

Once you decide the type of firm that you want to prepare your income tax return, the next issue is to pick the person who will serve you.  This is a relatively easy question.  Pick someone with whom you are comfortable talking about your personal and/or business issues.  Your tax preparer will know more about your personal concerns than any other person (except, maybe, your spouse).  If you are not ready to answer your tax preparer’s questions, then pick another preparer.  Also, consider whether he or she understands your questions and is able to answer in a way that you can implement the recommendations?(Knowing the tax rule does not automatically enable someone to explain the law in everyday language.)

Consider why you want a tax preparer to complete income tax return.

Do you want a large firm or a small firm.  Large firms have more resources to address international tax forms, large estates with trusts, and tax court appeals for IRS assessments.  Large firms tend to be organized into multiple departments so that preparers can specialize in either personal returns, corporate returns or partnership returns.  Be assured that the Firm will coordinate all information to ensure that your business issues will match your personal needs as much as possible.  However, if you bring your personal and business tax issues to the large firm, you may be assigned to multiple preparers each year.

Small firms can address most issues for individuals and local businesses and often charge a lower fee because they are not required to support the extended services that larger firms offer.  Small firms tend to maintain a general skill level in preparing both individual and business tax returns.  This is due to the fact that the typical small firm supports individual clients and they also have business clients who want the business and personal returns prepared by the same person.  So, if you want one person to help with all of your tax issues, then a small firm may be a good solution for you.

Is your tax return simple or complex?

Most simple returns include the following:

  • Standard Form 1040 that all tax payers must file.
  • Primary State tax return
  • Schedule A (Itemized deductions)
  • Schedule B (Interest and Dividend income summary)
  • Form W-2 Income

When your return has more that the items listed above, you are outside of the standard return.  Fees for additional forms typically are charged based on a combination of the amount of time spent and also on the number of items included on each form.  For example, Form 8949 (for stock sales) can include many lines.  While the fee for a single line form may be less than the fee for a form with 25 lines, the more complex form shouldn’t be 25 times the fee of the simpler one.

How much should I pay for a tax return?

This is always a difficult issue because each person’s tax return is unique.  However, many people are surprised to find out that franchise chains often charge a higher fee than local CPA firms.  Keep in mind that CPA firms often are more efficient than national chains because the CPA firm has less layers of review, lower overhead, and multiple sources of income (accounting, business consulting, payroll services, etc.) to generate overall profit.  National chains must make their full annual profit in three months because they are closed for the rest of the year.

In selecting a tax preparer, the fee is important, but it should be the least important factor.  The most important factors are the preparer’s skills and your comfort in speaking with the preparer.  So, always ask for an estimate before you agree to any service. If the preparer can’t provide a reasonable estimate or a maximum fee, then that person probably doesn’t have much experience or authority to control the amount of time required to complete the return.

Also, consider the full range of services that are available to you from each preparer.  Franchise chains typically close after April, so if you receive a notice from the IRS after your return is filed, you may find it difficult to locate a preparer from the national chain who can help you resolve the issue.

An additional issue regarding the scope of services is that unregulated preparers and Enrolled Agents focus on tax services.  Therefore, they may be limited in answering your questions about personal financial matters, tax planning strategies, or estate planning.

At the other end of the scale, CPAs are available throughout the year with a full scope of services that extend beyond tax planning.  CPAs can help with college savings plans, creating retirement accounts, setting personal budgets, assisting with loan applications, and helping you to determine whether to lease or buy an automobile.

Our Take on the Matter

Please understand that tax laws are complex and are growing more difficult to answer each year.  If you are considering choosing a tax preparer to complete your income tax return, consider your options carefully.  All preparers are in business because they have clients who want their services.  However, there are many different types of firms and many levels of competence.  Pick the firm that meets your needs and don’t be shy about asking questions at any time.

The tax preparation process is also becoming more complex each year.  For example, as a CPA firm we are now required to have an engagement letter for each client.   Click here to read our standard engagement letter.  As you may note, it is five pages long, and basically says that we will do what we promised and prepare your return to the best of our ability.  Also, the IRS is now requiring us to maintain checklists, documentation of our records review, and other procedures that do not enhance revenue collection or decrease your tax liability.  This is a “cost of doing business,” but it also diminishes your ability to prepare your own taxes or to provide all of the information that prepares need.  So, please bear with us as we enter another year of tax preparation.  We are trying to make the process easy for you, but sometimes we must ask questions or print forms that seem a bit overwhelming.  Rest assured that It’s all part of the process.

So, if you have any questions, or if you’re ready to have your tax return prepared, call us at (504) 780-9091.  We can’t provide a fee estimate over the phone, but if you send us your information, we can provide a fee estimate.  Once you receive our estimate, you can decide if you want to proceed or take an alternate option.

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