Do You Need a New Tax Professional?

I wanted to re-post an article found by partner Mike Kovar that I found insightful and relevant.
Mike Kovar

With the initial tax deadline passing, I recently came across this interesting tax article.

Like many professionals, tax preparers perform necessary compliance requirements with regard to filing federal and state taxes. The questions are the same whether the individual owns a small business which files its own business tax return or whether a business is entered on a Schedule C.  Where tax preparers differ from other professionals is that a poorly prepared tax return can have a real financial impact on an individual in terms of overpaid taxes, missed deductions or inconsistent information which results in an audit.

Here are a few of the questions you need to ask yourself about your tax preparer:

 “Is this person qualified? Ask to see your preparer’s credentials (aside from a business license) to make sure that he or she is qualified. At the very least, the pro should be a licensed tax preparer, which is the lowest level and fine to use if all you have is a stack of W2s. Or she/he should be a certified public accountant (CPA) or an enrolled agent (EA).”

You need to consider the complexity of your return in light of the preparer’s experience. The knowledge difference between a credentialed and experienced tax preparer at a large firm can be vastly different than somebody that handles family and friends on Turbo Tax. As the article states, you may pay more in fees but will likely save more in tax dollars or minimizing the probability of an IRS audit.

“What does the tax prep fee include? I would advise to never select a tax pro based on fees alone. After all, the old maxim: “you get what you pay for” has been around for generations for a reason.  In my experience, fees charged for tax preparation services vary widely. It depends upon the level of experience and knowledge, amount of compilation work required and region of the country.”

In my opinion, you deserve more for your dollars than just a personal or business tax return. I expect my tax preparer to explain the impact of tax law changes and evaluate life changes on my tax position. All of this explanation should assist in formulating a legal tax position which minimizes future taxes and is a “realistically sustainable position”. This is the standard tax preparers are held to in preparing your return – if a position taken is unlikely to pass scrutiny in an audit, then that position is not realistically sustainable.

 “ Is the tax professional available after tax season? If you are audited, you want to be able to rely upon either minimal services (input only) or representation services from the pro who prepared your income tax return. If your tax pro is around only from Jan to April 15, you will be on your own or will need to consult with another tax professional if you have questions, received confusing correspondence from the IRS or state, or an invitation to an audit.”

I only engage tax preparers that will stand behind their work in the event of an audit. The taxpayer bears the burden of working with the IRS in the event of an audit but any positions taken by the tax preparer which are questionable to the IRS should have the tax preparer’s involvement. That, of course, is why you hired them in the first place.

“Did the tax professional sign your return? If you pay for professional services, there should be a signature, a PTIN, and the tax pro’s address listed at the bottom of page two of the Form 1040 to indicate the return was prepared by a professional. The tax pro should also return all paperwork that you provided to you.”

You should only hire tax professionals that stand behind their work. Avoid any paid preparer that refuses to sign your return.

The last point I would emphasize is that the more complex your return is then more planning prior to year-end is required. My recommendation is to engage a tax preparer that has experience in your income areas. If you have rental real estate, ask the question about how many returns of tax preparer has completed in this areas and the best strategies to legally minimize taxes. Always follow the tax code for your personal taxes and business taxes.  Be honest and ethical – but don’t ever  be afraid take advantage of the available deductions as they are tax law.

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