It's tax season, and for millions of Americans, that means going one-on-one with Uncle Sam, or more specifically, the Internal Revenue Service.
Of course, you don't need to go it alone. According to Consumer Reports, over 60% of Americans use a tax professional to accommodate the I.R.S. Yet only three U.S. states require licenses for tax preparers.
Now, the Consumer Federation of America is out with a new study showing 80% of Americans believe all tax preparers should be licensed and should have to pass a competency test. "Errors on tax forms put consumers at risk of fines and lost tax refunds yet few states have taken action to ensure that paid tax preparers are licensed and, trained and disclose what are often high and unpredictable fees," says Tom Feltner, director of financial services at the Consumer Federation of America.
Why is having a licensed, knowledgeable tax professional so critical to Main Street tax consumers? According to the U.S. General Accounting Office, "about 56% of 145 million individual tax returns (81 million) and 59% of returns claiming the Earned Income Tax Credit (EITC) were completed by a paid preparer in 2011." A licensed professional, the GAO says, "makes particular sense for those who prepare tax returns for lower income consumers who rely on the EITC, as they can be severely impacted by an incompetent paid preparer. A consumer can lose the credit for ten years if it was claimed but the consumer is later found to be ineligible."
O.K., so it's readily apparent that the more complex your tax return, the more you'll need a good, dependable tax professional to get you over the hump.
To find that "perfect preparer," start with national industry organizations like the National Association of Tax Professionals, or ask around with friends, family and co-workers to hear about their own experiences. Past that, when you start to vet a few tax professionals, be ready with a list of critical questions to ask.
To help get you going, TheStreet reached out to several tax experts to see what questions they'd ask if they were looking for help with their taxes. Here's the rundown:
- What's your certification? - "About 60% of tax preparers are not licensed also referred to by the IRS as unregulated," says Andrew Poulos, principal of Poulos Accounting & Consulting, Inc. in Atlanta. "Therefore, it's important for people to be aware of the ramifications of using an unlicensed tax preparer. So make sure you ask your tax preparer if he or she is an enrolled agent, certified public accountant, or tax attorney. These are the only three licensed credential holders who can practice before the I.R.S."
- How thorough are you as a tax specialist? - Sherry Peel Jackson, a former IRS agent and author of the book How To Stick It To The IRS: Confessions From A Former Insider, says details are a big deal with tax returns, so you want someone who is thorough and diligent about all aspects of your taxes. "Do you just take my paperwork and prepare the return, or do you ask me probing questions to dig deep for additional deductions?" asks Jackson. "Also, do you aggressively search the statutes for deductions for businesses and individuals, and do you periodically share tax saving tips with your clients as you learn about them?"
-Can your preparer handle my unique needs? - In the tax preparation world, there are plenty of generalists, but multi-skilled specialists are worth their weight in gold. "If you have a relatively complex return with multiple income streams, ask the tax preparer if they have prepared those types of returns," says Dhruval Patel, a C.P.A. in New York City. "The answer should be 'yes.' You don't want someone who is brand new, and might miss out on some key deductions.'
-How will I be charged for the preparer's services? - Brian Ashcraft, a regional director at Liberty Tax Service, wants your tax specialist to be explicit and transparent about charges and fees. "If your tax preparer says he or she charges based on your refund, find someone else," Ashcroft says. "This is a red flag, as the preparer may be inclined to include deductions for which you are not eligible. Remember, when it comes to good tax preparation, it is not uncommon for fees to adjust based on the complexity of the return."
-Will I be able to reach you in August? Filing the tax return is only the beginning of the tax process, adds Ashcroft. "What happens if the IRS has questions about your tax return?" he asks. "You'll need to be able to get in touch with your tax preparer to answer those questions. Make sure your tax preparer can provide you with reliable contact information so you can reach him or her in the off-season."
It's always a good idea to get with often complex tax issues. Just don't pick the first tax specialist you see, and definitely don't hire one without asking the questions listed above."