NEW YORK (MainStreet) – Taxes are hard enough without having to deal with a lousy – or worse, unethical – tax preparer that could set you up for an unpleasant audit down the line. How do you know you've landed a rotten fish?
According to the Internal Revenue Service, more than 144 million tax returns were filed by individuals in 2010, with gross collections totaling about $1.17 trillion. Professional tax preparers handle about 60% of those returns.
With that kind of dough on the line, taxpayers can’t afford any mistakes – but that’s exactly what they seem to be getting from tax preparers. A 2006 study by the Government Accountability Office looked at a random sample of 19 tax preparers and found that all 19 made mistakes, including claiming too many exemptions, failing to claim allowable tax credits and missing tax deductions that could have saved them money.
So how do you know that you’re risking a raw deal with your tax preparer? If you run into any of these scenarios, keep your guard up and your cash down – and keep on looking for a licensed professional who knows what he or she is doing:
Your preparer promises a big refund.
Any tax preparer who flat-out guarantees a big tax refund may be leading you on – especially if they haven’t seen your financial documents yet.
“One of the biggest scams are tax preparers who advertise they can guarantee you the biggest refund before they even look at your tax information,” explains Yvette Rebella, a board member of the California Tax Education Council, a nonprofit tax organization.
One potential tactic that results from their promise of a big refund is to juggle the numbers on your tax return to generate the big payout, but that risks an IRS review and bigger problems down the road.
Your preparer doesn’t have proper credentials.
You can avoid potentially serious issues simply by checking to see if your tax preparer has the correct identification. The IRS recently began assigning Preparer Tax Identification Numbers (called “PTINs”), so if your tax specialist can’t provide one, you may be courting trouble by using an unlicensed preparer.
Your refund is not deposited into your bank account.
If a tax preparer insists that any refund check be made out to his or her company, or deposited directly into a bank account without your name on it, that’s a huge red flag that your refund may not find you when all is said and done.
The preparer’s fee is based on a percentage of your refund.
Reputable tax prep firms charge a flat fee for their services, based on the size and scope of your tax return. If a preparer bases your fee on a percentage of your tax refund, that should be an immediate deal-breaker. That only gives the preparer incentive to pump up your refund by any means possible, which can invite some mishandling of your financial information.
No matter what, check with the Better Business Bureau.
The IRS advises a full review of your tax specialist before handing over your documents. Step one is to check with the local Better Business Bureau. If you see your tax preparer’s name listed, regardless of the details, it’s probably best to keep looking for someone with an unblemished record.
This isn’t to say that most tax preparers are unethical or unprofessional. By and large, most are diligent, talented and honest. But with your good name on the line (literally), it’s best to thoroughly review any tax specialist you’re thinking of bringing aboard.
That’s just good business, and good common sense.
If your taxes are simple or you are wary of hiring a tax professional, check out MainStreet’s complete guide to free online tax tools!