Money & Policy

6 Things Your Tax Preparer Doesn’t Want You to Know

What to look for when choosing someone to do your taxes

(This article appeared previously on MarketWatch.) 

As we head into “the most wonderful time of the year” (tax time), many of you may be using a third party to help file your tax returns.

Keep in mind the following six things a tax preparer may not tell you: 
1. I'm not that prepared to prepare your taxes.
The only common standard across all paid tax preparers is that they must have a Preparer Tax Identification Number (PTIN) to sign a tax return. Is the PTIN indicative of any kind of tax expertise? Absolutely not. Yes, an attorney and a CPA can have one, but so can the man who lives down by the river — as long as he is willing to complete an application and pay a $64.25 fee.

(MORE: Don't Miss These Tax Breaks)

Just because a business advertises that it files taxes doesn't mean its preparers have educational expertise or experience doing so. When you work with certified professionals (such as enrolled agents, CPAs, attorneys), you increase the likelihood of dealing with a well-educated professional who has the necessary experience to guide you on a complex situation.
But even that isn't fail safe (see point No. 2).
2. Just because I'm a CPA doesn't mean I'm a tax expert.
When people think of CPAs, they often think of tax preparers. In reality, the majority of CPAs are actually auditors who have little exposure to the tax side of the accounting world, much less the specifics of personal taxes. Even “tax” CPAs can run into a similar problem. For example, a CPA could be incredibly knowledgeable on the international taxation of large publicly-traded companies, but still have little experience preparing personal taxes.

(MORE: Obamacare and Your Taxes)

Consequently, it's important to match expertise with need. Using a tax preparer who is also a CPA is my preferred standard — so long as the CPA has experience with individual income-tax and related issues.
3. I didn't prepare your return.
Most tax preparers, but certainly not all, have a tiered preparation system. A junior preparer organizes and inputs your information, at which point a manager or partner reviews the return before delivering it to you.
While this process of checks-and-balances is a best practice, it doesn't guarantee that the reviewer always catches the mistakes made by the preparer (and yes, they do happen). It's important to understand how much time the reviewer spent on the return versus the junior preparer. Additionally, was your return outsourced? Did your information leave the local office? Did it leave the country?
Make sure you know.

(MORE: Tax Breaks If Your Personal Economy Is Weak)

4. I've conservatively prepared your tax return (maybe too much).
The interaction of the federal tax code, regulations, and other source materials is complex, even for a tax preparer. Consequently, preparers often apply general tax rules instead of researching and applying a potentially advantageous exception when preparing tax returns. This is done for three reasons:
  • To reduce your odds of getting a tax notice (at the potential cost of a higher tax bill).
  • To keep costs down. Identifying exceptions takes time, which is often billed for on an hourly basis.
  • To reduce the preparer’s liability in the event you are audited, lose, and try to recover the funds.
If you want to benefit from the complexities of the tax code, you have to be willing to pay the fees necessary for the preparer to research the issue and reach an accurate conclusion.
Just remember to be mindful of wasting time and money trying to save a few bucks versus hundreds or thousands of dollars.
5. I'm afraid to look more deeply into issues, even though it may save you money.
Piggybacking on point No. 4, time is money and a preparer may be scared of sending you a bigger bill for it. Most people are afraid of lawyers and accountants because “the clock” is always ticking. This fear is usually unnecessary. Yes, there are cases in which big bills rack up, but if an opportunity exists to reach a different, more advantageous conclusion, then the cost can be worth it.
Let your preparer know that you want him or her to be on the lookout for tax saving opportunities and that you are willing to pay for this. A simple trick to avoid “bill creep” is to request that the preparer provide an estimate in advance of how much it will cost before proceeding. Most often, you both will be able to determine if it is worth the preparer's time — and your money— to research the issue.
6. I'm not your record retention bureau.
Your tax preparer may have hundreds, if not thousands, of clients. When you add it all up, keeping your tax records forever is a costly, risk-laden exercise. There are no industrywide standards on document retention, and your records may ultimately be purged according to your tax preparer's unique policy. Knowing this policy up front, and offering to pay for archiving services (if needed), will help you avoid being empty-handed if a tax official comes knocking.
Paying a business to prepare your taxes is simple. Finding the right business to prepare your taxes isn't. Make sure you thoroughly understand your preparer's competence and experience (and are willing to pay for it) so you aren't leaving money on the table come April 15.

Brian Vnak, a director of Integrated Advice Strategies at Wealth Enhancement Group in Minneapolis, Minn., is a CPA, with a bachelor's degree in business administration and a master's degree in accounting, both from the University of Notre Dame. Contact Brian at [email protected]

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