Storefronts for tax-preparation chains have sprouted across the nation, with window ads offering discounts and other enticements. The choice can have serious consequences — the slightest misstep can land you squarely on the IRS's radar screen. Once there, the legal burden is on you to resolve any problem, regardless of who made the error.
The good news is that in recent years the IRS has been working hard to better regulate the tax-preparation industry. At a minimum, it requires that all individuals who prepare income tax returns for compensation obtain and annually renew Preparer Tax Identification Numbers (PTINs) and include them on every tax return they prepare. Here's some useful information about how to file your taxes properly.
Income tax return preparers
• Your cousin, the numbers whiz (who likely does not have a PTIN)
• Volunteers for organizations and others who assist low-income or elderly taxpayers through the IRS's Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs
• Registered Tax Return Preparers (RTRPs): People who have passed an IRS tax test and background check and are subject to continuing-education requirements. RTRPs have very limited practice rights before the IRS and may not provide tax advice, except to prepare the return.
• Enrolled Agents: Unlike registered tax return preparers, EAs, many of whom are former IRS employees, must pass an IRS tax test and background check. They are also subject to continuing-education requirements. EAs enjoy full practice rights before the IRS and may provide tax advice beyond the return.
• Certified Public Accountants (CPAs): People who have earned a college degree in accounting, passed a state professional exam, are licensed by and subject to disciplinary action by a state board and generally are subject to continuing-education requirements. CPAs enjoy full practice rights before the IRS and may provide tax advice beyond the return.
• Tax Attorneys: Those who have passed a state bar exam, are admitted to practice, are subject to disciplinary action by the highest court in the state and generally are subject to continuing-education requirements. Attorneys may practice before the IRS and the courts and may provide tax advice beyond the return.
Determining your personal tax and financial situation
.For simple situations — just a W-2, mortgage interest, property taxes and some cash donations to your favorite charities — preparing your own taxes using one of the popular tax return software programs may save you time and money, and even let you file your return electronically.
.If the mere mention of taxes makes your eyes glaze over or you have a healthy fear of the IRS, having your taxes prepared by one of the nationwide commercial tax-preparation franchises or a local tax service with e-filing capability may be a good solution. These offices are convenient and fees generally are determined by the number of forms and schedules.
.If you own a business, are self-employed or have a more complex situation, you may want to consider hiring an enrolled agent, a CPA or a tax attorney. Such professionals often charge more, but the increased complexity is better handled by someone who has experience with and specific knowledge of matters such as business and retirement planning.
Tips from the IRS
• Check the preparer's qualifications, educational background and whether he or she has attended continuing-education classes.
• See whether the preparer has a questionable history with the Better Business Bureau. Check on license status and any disciplinary actions through state boards of accountancy (for CPAs), state bar associations (for attorneys) and the IRS's Return Preparer Office.
• Ask about fees. Avoid preparers who base their fees on a percentage of your refund or those who claim they can obtain larger refunds than other preparers. Also, always be certain any refund is sent to you or directly deposited in an account in your name.
• E-filing. Paid preparers generally must file returns electronically, unless the client opts to file a paper return.
• Confirm that your tax preparer is accessible. Can you contact the tax preparer after the return has been filed, even after the due date, if questions arise?
• Provide all records and receipts needed to prepare your return. Don't use a preparer who is willing to e-file your return before you receive your Form W-2.
• Never sign a blank return.
• Before you sign your tax return, make sure you understand everything and are comfortable with the accuracy of the return.
• Make sure the preparer signs the form and includes his or her PTIN and provides you with a copy of the completed return.