12/29/2014 - How to Choose a Tax Preparer, Part I

"The hardest thing in the world to understand is the income tax."
- Albert Einstein

According to the IRS more than 80% of Americans use a tax preparer or tax software to prepare their income tax returns. As tax laws become more complicated, taxpayers need help from professionals to help prepare their returns.
A taxpayer is legally responsible for computing and paying the correct amount of tax even though the return is prepared by someone else. Most return preparers are professional, honest and provide excellent service to their clients. Unfortunately, unscrupulous tax return preparers do exist and can cause huge financial and legal problems for their clients. Examples of improper actions by unscrupulous preparers include the preparation and filing of false income tax returns that claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions.

It is important to choose your preparer wisely. Here is advice from the IRS on how to select a preparer:

Check the preparer's qualifications. Until 2011, the IRS did not have a requirement for national registration of paid tax return preparers in the United States. Effective January 1, 2011, rules require the registration of almost all paid federal tax return preparers and the assignment to each of a Preparer Tax Identification Number (PTIN). Some paid preparers must pass a national tax law exam and undergo continuing education requirements. Persons who are certified public accountants (CPAs), attorneys or enrolled agents are required to register, but are not required to take the exam and continuing education. Ask your preparer if they have a PIN and ask if the preparer is affiliated with a professional organization and attends continuing education classes.

Check the preparer's history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Enrollment for enrolled agents.

How does the preparer charge? Don't use a preparer who charges you a percentage of your refund. If a preparer tells you he or she can get you a bigger refund than other preparers, avoid them. Always make sure that any refund owed to you is sent to you or deposited to your bank account. Never let it be deposited in the preparer's account.

Do they offer electronic filing? Any paid preparer who prepares and files more than 10 returns for clients must file the returns electronically, unless the client opts to file a paper return. More than 1 billion individual tax returns have been safely and securely processed since the debut of electronic filing in 1990. Make sure your preparer offers IRS e-file.

Stay tuned to get your last "How to Choose a Tax Preparer" tips, next week.

-Patti Spencer