It’s February. You’ve received all your W-2, 1099’s and various other documents, like proof of health care (1095). You’ve got your proverbial shoebox of receipts – or recorded them on an app or spreadsheet. You might be tempted to wait a while – but just because taxes aren’t due until April doesn’t mean you shouldn’t deal with them now. Especially if you might require the help of a professional.
As a Certified Public Accountant (CPA) who used to prepare taxes for others, people are often surprised to learn that I don’t prepare my own income tax returns anymore. To that end, I can attest to the challenge people face this time of year when searching for a tax preparer. If you’re looking for professional help before the April 18 filing due date, it’s essential to know that not all tax preparers are created equal, and not everyone needs to hire a CPA.
Is your tax situation complicated?
Finding the right person to help with your taxes depends not only on the complexity of your tax situation but also on what kind of services you need.
If you simply want to ensure that your taxes are filed correctly based on the forms you will complete, you can probably find someone who won’t charge too much. On the other hand, if you also expect that person to help ensure that you’re paying the least amount of taxes required, you should plan to spend more, and you’ll want to do your due diligence confirming their qualifications.
I’ve tried everything from hiring a full-service CPA firm to using an online tax application to prepare our taxes, and they each have pros and cons. If you find yourself with tax complexities not easily handled by popular online apps like TurboTax or TaxAct, consider these tips to find the best preparer for you.
Should your tax preparer hold professional credentials?
While you may not need to hire someone with advanced credentials, it’s important to know how to distinguish the different types of professionals you’re likely to encounter.
Believe it or not, almost anyone can charge people to prepare their taxes if they have registered with the Internal Revenue Service (IRS) and paid the fees to obtain their Preparer Tax Identification Number (PTIN). The PTIN registration process costs less than $40 and takes about 15 minutes.
Anyone who prepares or assists in preparing federal tax returns for compensation must have a valid PTIN. At national tax preparation chains like H&R Block and Jackson Hewitt, you should expect your taxes to be prepared by an individual with a valid PTIN, unless they specifically inform you otherwise.
An Enrolled Agent (EA) has passed the IRS test for tax preparation and is allowed to represent taxpayers in meetings with the IRS. Most EAs have a good understanding of common tax issues like what you can deduct, self-employment income particulars, and if you qualify for any credits.
If you encounter a tax matter like receiving a letter from the IRS about an old return, an EA can often help you figure out what to do, even if they didn’t prepare the return in question.
Certified Public Accountants
A Certified Public Accountant (CPA) has a degree, studied accounting, and passed the Uniform CPA exam. Just because someone is a CPA doesn’t mean they prepare taxes, but if a tax preparer is a CPA, you can feel confident they have a depth of knowledge.
If they are a Personal Financial Specialist (CPA/PFS), they have also passed an additional test demonstrating a deep understanding of personal finance issues like retirement planning, budgeting, and investing.
People usually turn to CPAs for tax help when they have a complex situation or seek in-depth planning assistance. If you’re only having a CPA prepare your taxes, chances are that an intern or an early-career staff member is handling the preparation, with the CPA simply reviewing their work.
Hiring a CPA is worth it if you need someone who will connect all your financial dots. For example, if you’re a small business owner who also needs assistance with bookkeeping and payroll, a CPA could help.
Meanwhile, if you’re only looking for someone to input all of your information correctly and to ensure that you’re not going to get in trouble with the IRS, you’ll probably find that a CPA is more expensive than what you need.
Where should you look for a tax preparer?
You can find tax preparers using directories maintained by the IRS and credentialing organizations. Here are four to consider:
Tax Preparers: Use the Directory of Federal Tax Return Preparers maintained by the IRS to find approved tax preparers and confirm that they hold a valid PTIN.
Enrolled Agents (EA): National Association of Enrolled Agents
Certified Public Accountants (CPA): Since CPAs are registered at the state level, use this directory maintained by the Association of International Certified Professional Accountants (AICPA) to locate the CPA Society for your state, which you can then search.
Personal Financial Specialists (CPA/PFS): AICPA Financial Planning Resources
When performing your search, make sure you limit results to specialties that apply to you. If the database has a category for “individuals,” always check that box to filter your results, along with any other needs you may have, such as multi-state filing requirements or owning a small business.
Your search is likely to turn up multiple results. I tend to narrow my search to people who operate out of a small firm or even their own office. They’re more likely to work with everyday people at an affordable rate.
After that, it may come down to convenience. Whose office is closest to you for dropping off your information, signing documents, or stopping by mid-year for a tax planning session?
If you’re interested in hiring a CPA, I’ve found there aren’t many who want to do income taxes for regular families with less complex tax circumstances. To find a CPA who does, I suggest picking up the phone and start asking, “Do you accept individual tax clients, and what is your minimum fee?” If the minimum is more than $500, I’d say move on.
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