What do you look for in hiring a tax preparer, an accountant, or a Certified Public Accountant(CPA) to be part of your professional services team? This question comes around quite a bit this time of year. The answer depends on your specific needs and how complex your current situation is or may become. An individual or married couple with a relatively simple life and a reasonable understanding of the tax laws may be able to get by with a simple tax preparer, but as business, family, personal situations become more complex, you may need to look to hiring a CPA to be in your corner.
Anyone can legally prepare income tax returns. There are no licensing requirements and no required classes that need to be taken in order to “hang up a shingle” and start collecting fees for preparing returns. Further, you as the taxpayer and signor of the return is ultimately responsible for the information on your return, its accuracy, and the paying of the associated tax. Make sure you understand the information on the return and the associated tax laws. If you have a question – by all means, ask the preparer to explain it to you – and even have them show you the source document that supports their stance. If it sounds too good to be true, it very likely could be! Don’t be afraid to get a second opinion. To help you understand the various levels of service that are available, I want to group them into 4 types, from lowest on up, and explain what to expect from each of their services.
1. A tax preparer generally prepares only income tax returns – with the vast majority of those returns prepared being relatively simple. They generally input the information from the documents, ask some general questions relating to this year’s income tax return, and help you minimize your taxes for the current year.
2. An accountant may or may not prepare income tax returns. Generally, they will specialize more in bookkeeping, payroll and sales tax type functions but may prepare some income tax returns as well. Because of the accounting skills necessary to perform their non-income tax duties, they generally have a better understanding of other taxes that may affect an individual or small business.
3. An Enrolled Agent is a person that has earned the privilege of representing taxpayers before the IRS by either passing a 3-part test or with prior work experience with the IRS. They are generally well versed in federal income tax law and can help you through any problems you may have with the IRS.
4. A CPA has to meet the most stringent education and regulatory requirements of any tax preparers. While CPA’s may specialize in other areas of expertise, those practicing in the income tax sector generally provide the best well-rounded knowledge in all types of tax that may affect a person as well as a broad understanding of other financial and life event matters. A good CPA will also look at tax and financial planning over a broad spectrum, looking at more than the current year and more than one type of tax.
I would advise finding a professional tax preparer that you feel comfortable with. One that will take the time to get to know you and your situations in life. Through the years, you will go through many changes – financially and otherwise, and having a trusted advisor who can help you through those difficult times in the best way possible is not a bad thing. Don’t be afraid to ask your preparer about their credentials, what classes they have taken, certifications they have attained, and quality standards to which they adhere. Also be aware that certifications and credentials don’t necessarily mean they have all the answers or even know where to find them.
written by Joseph Maiers with J.Maiers, CPA LLC