How To Choose A Tax Professional

Your tax return may be so simple you don’t need professional help—until the year that it isn’t. Tax year 2020 is that year for many taxpayers.

Covid-related tax relief, work from home considerations, and taxable unemployment are all adding complexity to what used to be the most straightforward returns. Because of these complicating factors you may want to wait a little longer to file your taxes. But if you are planning on hiring a paid preparer you should be looking for one now unless you are willing to be on extension or to pay for priority processing. After last year’s chaotic tax filing season, many experienced tax professionals have decided to retire, have scaled back their practices, or are not taking new clients. New return preparers are setting up shop to fill the void, but only some of them are serious about tax; others see return preparation as a short-term cash cow and don’t have much practical experience preparing tax returns.

Preparer Regulation

Many taxpayers believe that all return preparers are regulated by the Internal Revenue Service. That isn’t true. Enrolled Agents (EAs) and Certified Public Accountants (CPAs) are regulated and have unlimited rights to represent taxpayers before the IRS. Other unenrolled preparers, in most states, are not regulated. Moreover, their ability to represent a taxpayer with a tax issue before the IRS is extremely limited.

A handful of states require unenrolled return preparers to register and a few of those states require passing an exam and taking continuing education. The following seven states have registration and/or education requirements for paid tax return preparers: California, Connecticut, Illinois, Maryland, Nevada, New York, and Oregon.

In the rest of the states only the type of credential held determines the requirements. No credential? No real requirements. Anyone who gets a preparer tax identification number, or PTIN, from the IRS can set up shop and get paid to prepare tax returns.

Enrolled Agent

EAs are licensed by the U.S. Treasury Department. The exam they take to obtain the credential is 100% tax focused and is written by the IRS. Usually an EA will have one or more years of experience preparing tax returns before deciding to obtain the EA credential and many EAs offer both return preparation and representation services. Enrolled agents are generally unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and before which IRS offices they can represent clients. The IRS has a list of currently active EAs available for download. Taxpayers can also e-mail the IRS to verify an EA’s status.

Certified Public Accountant

CPAs are licensed by a state licensing authority (e.g., a state board of accountancy) and many states recognize other states’ licenses. In addition to passing the CPA exam, a CPA must usually have a degree in accounting and serve an apprenticeship in a firm before they are granted the credential. It is important to note, however, that not all CPAs are experienced in tax preparation. CPAs are, by definition, accountants. Many specialize in financial accounting and auditing, but have little to no knowledge of tax accounting and/or tax return preparation. That’s not necessarily a problem, but it is important to ask, if you are considering hiring a CPA to prepare your tax return, how much tax return preparation experience they actually have. Taxpayers who want to verify that a CPA is still actively licensed will have to check with their state licensing authority some of which may make this information available via online search.

Unenrolled Preparer (PTIN Holder)

Unenrolled preparers can elect to participate in the IRS Annual Filing Season Program (AFSP). The AFSP offers limited representation rights to tax practitioners who fulfill the requirements. AFSP participants receive a record of completion that allows them to represent clients before IRS customer service staff (not collections or appeals officers) for taxpayers whose returns they have prepared. AFSP participants are required to pass a 100-question basic knowledge test each year, obtain a minimum number of continuing education credits during the previous year, and agree to abide by Treasury Circular 230 (whose requirements govern enrolled preparers). Unenrolled preparers who have only a PTIN and do not participate in AFSP are not even allowed to write a letter for you even if they prepared your return. Some of them may do it, but they are acting outside the scope of their authority. The Directory of Federal Tax Return Preparers is a tool provided by the IRS that allows taxpayers to search a tax professional by name or by region and lists credentials, including those who are participating in the AFSP.

Many tax practices (both independent and the franchises) have more than one type of tax preparer in the office. You should always choose a tax professional based on your needs, but sometimes it’s okay to choose a less-experienced preparer if they have access to a more experienced person in the office (and you feel confident that they can recognize when they need help and that they will get it when they need it). It’s also important to remember that credentials don’t necessarily guarantee competence.

What to Look for Besides Credentials

In addition to credentials and experience, taxpayers should consider the type and level of service they are expecting when looking for someone to prepare their tax return.

Do you want your taxes done while you wait? Even the large franchises and small practices who normally provide while you wait service may not be doing that this year. Depending on your location and its Covid-19 restrictions you may have to look around to find a practice with walk in service.

Are you expecting your preparer to be available outside of tax season to answer your questions or to help you if you get correspondence from the IRS or your state? Do you think you might want additional tax planning services now or in the future? Some tax practices focus exclusively on preparing income tax returns during the filing season and are not open the rest of the year. You may not think you need year round service, but consider the long game. It might be worth it to start developing a long-term relationship with an experienced tax professional now so that they know your history when you have a problem or when your hard work finally pays off and you need more proactive tax planning.

I Want to do My Own Taxes

Under some circumstances it really is okay to do your own taxes using commercially available software or one of the free file options (if you qualify). In general, however, if you have unpaid taxes, always have a balance due and don’t know why, have multiple years of unfiled tax returns, are self-employed, or own rental property, hiring a qualified professional is usually money well spent. Why? Because it’s really hard to know what you don’t know. A good tax professional won’t let you leave money on the table and they will work to ensure that if you do receive a notice from a taxing agency you will have the documentation ready to answer it.

Kevin Huston, Enrolled Agent and owner of Blue Ridge Tax Advisors, Inc., in Asheville, North Carolina, says, “Tax software is no substitute for a good tax professional.” He’s right. And this doesn’t just apply to do-it-yourself returns. Even professional grade software will allow a paid preparer to make mistakes if they don’t know what they are doing. Inexperienced solo practitioners often rely on their software to catch their errors and sometimes it doesn’t.

Remember, making a choice based on price alone is rarely the best option. Take your time to find the right practitioner and to build a lasting relationship with them. You won’t regret it.

MORE FROM FORBESWith Congress Still Debating Stimulus, Should You Rush To File Your 2020 Tax Return Or Wait?

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