Tax season is underway and many of you are likely working to get your paper work in order to (hopefully) file sooner rather than later.
At Networthy, we’ve received a lot of great questions this season from customers about filing their taxes. We thought this would be a good opportunity to share some of those questions with readers as well as answers from our community of professionals.
Each week, our team will be sharing some of these questions and answers from our community in order to ease you through the (often stressful) tax season.
The first answer in our Tax Advice series comes from Seattle accountant, Rob Lane:
I am looking for an accountant to prep my taxes this year? What do you typically look for in your tax preparer?
- Decide whether you need an Enrolled Agent (EA) or Certified Public Accountant (CPA).
- Consider whether you need an attorney to sort out any legal matters.
- Do they actually have time to properly prepare your taxes and file before the deadline?
- Check how accessible your tax preparer plans to be to answer questions or clarify their methods.
- Consider overall costs and experience for your tax preparer.
In light of the increasing complexity of the US tax code there are many factors to consider when choosing your next tax preparer. One of these factors is deciding what type of professional can provide you with a high-quality and cost-effective tax preparation services. There are two professionals who mainly prepare tax returns in the United States. Theses tax preparers are Enrolled Agents (EA) and Certified Public Accountants (CPA).
The main difference between an Enrolled Agent and a CPA is an Enrolled Agent has been given the permission to represent taxpayers by the Internal Revenue Service (IRS) and CPAs have been licensed by the states they intend to practice in. Other differences between EAs and CPAs are there are no minimum education requirements to becoming an EA and CPAs tend to have master degrees. In addition, EAs are required to pass an IRS exam covering individual and business tax topics and CPAs are required to take a comprehension accounting exam covering tax, audit, financial reporting, and other business topics administered by the American Institute of Certified Public Accountants (AICPA). Due to higher education requirements and exam complexity CPAs tend to be the preferred tax preparer. Although, EAs tend to be a less expensive service provider and may be the preferable tax preparer when your tax situation rather basic and straightforward.
Another profession frequently dealing with taxes are attorneys. Attorneys practicing in the area of tax law tend to offer services related to business entity structure, assisting in the audit appeal process, representing clients in tax court, and estate and trust management. In rare cases, attorneys will prepare returns. However, their core service is practicing law, not preparing tax returns.
After choosing what type of professional will provide you with the best service, a number of other factors should be considered. The first should be availability. Just like if a doctor has too many patients, a tax preparer with too many clients may not be able to give all their clients the attention they need. A preparer with limited availability may not have the capacity to file your return on time or worse rush though your return, leaving deductions on the table. When trying to determine if the preparer will have the availability to bring you on as a valuable client think about if there is a feeling the preparer is interested in you and saving you money and if the preparer is taking the time to ask you detailed questions about the complex areas of your return.
Another factor to consider when choosing your next tax preparer is accessibility. Ideally your tax preparer will be by your side year-round to answer questions, assist in the audit process (if necessary) and provide tax planning services. Hiring a preparer that simply files your taxes in April and disappears until the next tax season may provide you with great filing services. However, to truly create exceptional tax savings a year-round approach is required. Finding a preparer that is committed to helping you create the best tax scenario by monitoring your situation throughout the year will result in higher tax savings down the road. Therefore, when considering your next preparer ask if tax planning services will be included, if you will charged for phone calls to ask questions and seek advice, and if they will provide you updates on how the tax code is changing in the current year or near future and what you can do to now to create the best tax result once the new laws are implemented.
The final important factor to consider when choosing your next tax preparer is how much you will pay for their services. Which can seem like a balancing act when trying not to overpay for having your taxes prepared while not leaving valuable deductions on the table by hiring an under qualified preparer. While there is not a good rule of thumb to make sure you are getting a good return on your tax preparation fees. You should be getting more tax savings than you are paying in fees. Tax savings does not mean you should get a bigger tax refund than you paid in fees. Rather, it means your preparer reduced your tax bill by an amount greater than the amount you will pay them in fees.
Therefore in conclusion, the first factor to consider when choosing your next tax preparer is what type of professional will service you best. CPAs tend to be more expensive than Enrolled Agents. However, CPAs have more education and a more prestigious designation. EAs can still be a very cost effective tax preparation solution when your tax situation is pretty straightforward. After that considering if a preparer is available, accessible, and cost effective will lead to an overall good decision on who will prepare your taxes this year and in the future.
More questions about how to choose a tax preparer this season? Submit a question for one of our tax professionals or find an accountant near you. You can always contact our team at firstname.lastname@example.org for extra assistance.