Tax time is coming sooner than you think. While some people are confident doing a DIY tax return, you may be among the millions who need a little extra help. The most-cited reason for seeking paid advice is that computer software can’t replace a human being. It won’t take unique tax deductions into account. It won’t ask about that investment property you bought in late December. If you’ve undergone any type of life change, hiring a tax professional will help you avoid costly mistakes.
Reasons to Seek Tax Preparation Help
Some people get queasy just thinking about numbers. Others aren’t comfortable using software. If you have any doubts, hiring a professional can be money well-spent. Even an innocent mistake can land you in big trouble that takes a long time to untangle.
Even people who are familiar with software may want another set of eyes on their returns. By some estimates, tax preparation software such as TurboTax works for 80 percent of plain-Jane returns. Many offer a 100 percent accuracy guarantee, but it’s only as good as the numbers you enter.
There are four different types of tax specialists:
Tax Preparation Services
The “big box stores” of tax prep services get you in and out quickly. They often offer early refunds and have convenient storefronts in most communities. Their preparers are required to pass a competency test and be up to speed on the changes the IRS throws out each year.
Best for: people with a straightforward return; those who don’t want the bother of comparison shopping; those who are not comfortable with numbers. If you have a complex return, you own a business, or your filing status has changed, you might need a specialist.
Cons: The national chains are often lower-priced than independent storefront accountants and licensed professionals, according to Consumer Reports. However, that’s not always the case; do your homework. Not all preparers have the same level of experience, although novices’ work is checked by a supervisor.
Certified Public Accountants are a better choice if you own a business or have had lifestyle change that resulted in a change in your finances. If you have bought or sold a house, for example, or have a C Corp, S Corp or partnership, seek out a specialist in corporate accounting. CPAs can also give tax advice throughout the year and devise a general tax plan that minimizes your liabilities.
Best for: people who need extra guidance in tax matters and those with several income streams. They are also a help to those who want to start or close a business.
Cons: CPAs must pass a state accounting exam, but their backgrounds differ and not all are experts in tax law. Be sure to ask about the background and tax filing experience of CPAs you interview. Their services might cost more than those of a national chain, although prices vary by individual accountant.
For guidance: Click here for The American Institute of Certified Public Accountants.
EAs are the only tax professionals who are federally licensed to practice in all states. They can represent you at an IRS hearing. If you find yourself in tax trouble, this is the level of service you need. Enrolled agents must take 72 hours of continuing education courses every three years to keep their licenses. Many specialize in specific areas of tax law.
Best for: preparing taxes, tax resolution, and interstate tax issues – they are the only agent licensed by the US Treasury Department, instead of by individual states. EAs can be a low-cost alternative to tax attorneys in audit hearings and tax proceedings.
Cons: They tend to cost far more than tax preparation services and CPAs. Don’t pay for more expertise than you need. Some EAs also have specialties, so it is wise to find one who has a background appropriate to your circumstances.
For guidance: Click here for the National Association of Enrolled Agents.
If you find yourself in a legal quagmire, or have auditors breathing down your neck, a tax attorney might be your best resource. This kind of lawyer can also help you set up a legal tax shelter, deal with estate taxes, and represent you in court or before the IRS.
Best for: people who owe back taxes; those with extremely complicated tax returns or who face criminal tax charges.
Cons: more than likely, you will not need a big gun like this to file your tax return for you. Some specialize in certain areas of tax law, so make sure to ask.
For guidance: Check out the Martindale-Hubbell directory here or check out ratings by the AVVO organization here to find tax attorneys near you.
Free Tax Preparation Options
There are a few money-saving options for those who don’t want (or can’t afford) to pay for professional preparation. The IRS offers Free File, fillable forms and software that walk you step by step through the do-it-yourself process. There are versions for those who earned less than $60,000 in 2014 and those who earned more than that. Find information on Free File here. The program has closed for this tax season, so file this information away for next year.
If you’re 60 and older with a low to middle income, check out AARP Foundation Tax-Aide. It uses trained and IRS-certified volunteers to help sort paperwork and file federal income taxes for free at 5,000 sites nationwide.
How to Choose a Tax Preparer
In addition to checking professional websites, it’s a good idea to make sure your tax preparer is licensed or registered. Anyone who prepares a tax return for money is required to have a practitioner tax identification number. This PTIN must be renewed each year. Click here to see if your preparer has an active PTIN.
In the case of tax preparers other than CPAs, enrolled agents and tax attorneys, renewal may depend on continuing education requirements. It’s a good idea to get a recommendation from people you know, or ask the preparer for references.
There is too much at stake to make a mistake.
Marie Hickman is a TV reporter turned blogger who now writes about saving money, personal finance and couponing for Valpak.com and websites. She and her son live in Palm Harbor, Florida.