If you’re like most people, you’d rather go with a pro during tax season: More than 83 million people pay someone to help prepare their federal tax return, according to IRS data. That shouldn’t come as a surprise: With so many rules to know, forms to fill out and formulas to follow, it’s easy to make a mistake if you go it alone.
But when it comes to finding a good tax preparer, how can you be sure you’re making the right choice? Referrals are a great place to start, but it’s still important to do your due diligence. Make sure you’re asking the right questions — and getting the right answers. Here’s what to ask a tax professional before you decide to hire them.
DO YOU HAVE A PREPARER TAX IDENTIFICATION NUMBER?
This is the first question you should ask any tax professional. Any person who charges a fee to prepare taxes for others must register with the IRS and receive a preparer tax identification number (PTIN). In addition to signing your completed tax return, the tax preparer is required by law to enter this number on any return he or she prepares.
“In the past, anyone was allowed to prepare a tax return — even if they had no knowledge of how to do it,” says Dennis Cole, President of the Connecticut Society of CPAs and managing partner of Beers, Hamerman, Cohen & Burger. “The IRS now requires tax preparers to have a PTIN.”
If you do hire someone who doesn’t have a PTIN, the IRS could hit you with a slew of penalties, fees and other legal actions.
WHAT ARE YOUR REPRESENTATION RIGHTS?
Tax preparers fall into one of two main representation categories. Those who carry “unlimited representation rights” can represent clients on any matters, ranging from audits to collection issues to appeals. Those who carry “limited representation rights” can only intervene on behalf of people whose returns they prepared and signed, and under specific circumstances.
According to the IRS, tax professionals with unlimited representation rights include attorneys, certified public accountants (CPAs) and enrolled agents (tax preparers who have passed a three-part IRS enrollment exam). While an enrolled agent (EA) is not an employee or representative of the IRS, he or she can act on a taxpayer’s behalf when it comes to dealing with the IRS. In order to retain their licenses, enrolled agents must complete a minimum of 72 hours of continuing education every three years.
Both attorneys and CPAs are required to obtain licenses according to the rules and regulations of the states in which they operate — however, this does not mean that they will be tax experts. Some attorneys do specialize in tax planning and preparation, but keep in mind that most perform a range of other duties and their focus may not be on filing returns for clients. Similarly, CPAs may perform many duties outside of tax preparations, and many specialize in other areas of finance. So before hiring either type of professional to prepare your tax returns, make sure you meet them and are comfortable with their level of expertise.
DOES YOUR EXPERIENCE FIT MY SITUATION?
If you know your tax situation is not typical, make sure the professional you hire is someone who has completed returns similar to yours.
Working with a tax preparer who is familiar with your line of work can mean the difference between claiming all the deductions you’re eligible for and forfeiting your hard-earned money. If your tax situation is more complicated than the average nine-to-fiver’s — you’re self-employed, own a business or rental property, live in one state but work in another, have received an inheritance, or have worked abroad — your tax preparer should be trained to handle it. Colleagues who are in a similar tax situation can be good sources for referrals.
“We do a lot of foreign tax reporting, which is very specialized,” Cole says, “and failure to properly file can result in substantial penalties. In these instances, it is critical to have a knowledgeable preparer.”
Make sure the professional you hire has completed returns similar to yours.
HOW MUCH DO YOUR CHARGE?
Before you agree to hire any tax preparer, you need to discuss payment terms.
“Costs vary from preparer to preparer,” Cole says. “Typically an EA would be less costly than a CPA, but also would most likely not possess as advanced tax knowledge — which might be necessary for complicated returns.”
Some tax professionals will charge their clients based on the number of forms and schedules that must be filed with the return, some will charge hourly and others may combine these methods.
Both the IRS and the National Society of Accountants recommend that you avoid tax preparers who want to charge you a percentage of your refund. While you’re at it, it’s also a good idea to note what a fair price might look like so that you can be certain you aren’t being gouged.
According to a survey conducted by the National Society of Accountants in 2017, the average fee charged by a professional to prepare and submit a Form 1040 and state return (with no itemized deductions) was $176. With itemized deductions, that fee jumped up to $273. Those fees also vary substantially by region, typically appearing higher in the Northeast and on the West Coast and lower elsewhere.
Finally, don’t assume a commercial tax preparation chain will charge a lower fee than an independent professional. As with any service, ask for an estimate or range before you commit to going with any tax professional.
WHAT PROFESSIONAL ORGANIZATIONS DO YOU BELONG TO?
Membership in a professional organization is not a requirement to be a tax preparer, but it can be a sign that whoever you are considering is serious about the profession. Most organizations — such as the National Society of Accountants, the National Association of Enrolled Agents and the National Association of Tax Professionals — hold members to a special code of ethics.
Additionally, these organizations offer members many benefits, such as high-quality continuing education and access to research, which enable tax professionals to stay up-to-date with current tax developments and changes to the tax law.
This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.