10 February 2006

How to shop for a tax preparer

This part five in a weekly series focusing on lowering tax bills and making the process of filing slightly easier. Today, I’ll focus on whether or not to use a tax preparer.

Throw up your hands

The CS Monitor has an excellent article on selecting a tax preparer. Several of the points in the article are worth noting.

First, tax preparers do not have to be licensed in many states. The article points out that hairstylists usually have to have a license, but only California and Oregon require tax preparers to have a license. A better idea is to use someone that is either a CPA or an Enrolled Agent (basically the IRS version of a CPA). Both titles mean they have been licensed by the state or the IRS and can not only prepare returns but can also represent you in the case the IRS has "questions" about your return.

Next, ask questions about the preparers background and qualifications. Ask how long they have been in business. Ask if they are open all year or if they do taxes on the side (just because they do them only on the side should not disqualify the preparer if everything else checks out). Will they help you out if you are asked questions about the return by the IRS.

Finally, if the preparer promises a large refund, walk out. If they begin to talk about the fact that you don't have to pay taxes, walk out. It is illegal for a CPA or enrolled agent to prepare returns on a contigency basis. If it is offered, walk out. Any of these arrangements could lead to a falsified return, which you are responsible for.

The Motley Fool also has several excellent suggestions on selecting a tax preparer.

Last week, I wrote about the IRS' suggestions for selecting a tax preparer. These are additional suggestions on what to ask a preparer and ways to spot a fraud.

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