Working With a Tax Professional
By Dan Nastou, CFA
Stressful, time consuming, confusing…what’s not to love about doing our taxes??
Okay, obviously joking here, but filing our taxes can, well, be a pain in the butt. So if you’re looking for some hands-on help, working with a qualified tax professional can probably make your life a lot easier at tax time. And doing so shouldn’t have to cost you an arm and a leg either. But there are a few things you’ll want to consider before choosing someone to handle your taxes. So let’s get to it.
Here’s what we cover in this guide
Do you actually need help?
Types of tax professionals
Finding and evaluating professionals
Running background checks
Do you actually need professional help with your taxes?
Well maybe, but maybe not.
Yes, preparing your own taxes can definitely seem intimidating. But it doesn’t need to be. And realistically, most of us certainly can do our own taxes, if we really want to.
The most basic (and least expensive) way to do it is to fill out IRS forms by hand. Sure, it’s kind of old school, but it works. The IRS website includes step-by-step instructions and also has plenty of other useful information about filing your taxes in general.
The upside to this approach is that it’s free and will probably give you the deepest understanding of how your taxes are actually calculated every year. The downside is it can be time consuming, and potentially confusing depending on how complicated your taxes are.
Another option in the do-it-yourself category is to use automated tax preparation software, like TurboTax, for a relatively small fee. It will walk you through your taxes step-by-step and probably save you a lot of time. And for the most part it’s fairly affordable – you probably won’t need to pay more than about $50-$100 a year, although prices will vary based on how complex your taxes are. For the most basic returns, you can even get software for free.
We have a separate mini guide if you want to learn more about tax preparation software.
But if you’re having trouble doing your own taxes or are just worried about making a mistake, then it might be time to find a tax professional to lend a helping hand.
Types of tax professionals
First off, it’s important to realize there’s a wide range of tax professionals out there, and technically speaking, they don’t need any particular certification to help you with your taxes.
However, if your professional is going to represent you before the IRS – say if you’re faced with an audit for example – then he or she does need to be a Federally Authorized Tax Practitioner (FATP). And in general, it’s a good idea to work with someone with recognized credentials. For the most part, FATPs full into one of three categories; CPA, enrolled agent, or tax attorney.
CPA – Certified Public Account
A CPA, or Certified Public Accountant, must pass a challenging accounting exam, meet work experience and education requirements, and be licensed by the state he or she works in. If your taxes are fairly complicated, then it might be a good idea to work with a CPA. CPAs also cover a wider range of accounting matters beyond just taxes.
Enrolled Agent
While CPAs are trained to deal with a range of accounting topics, enrolled agents are trained specifically to handle tax matters. The requirements to become one are less stringent than those for a CPA, but it’s still a rigorous process – they either need to pass a series of exams or qualify based on experience as a former IRS employee. Enrolled agents are licensed by the federal government, while CPAs are licensed at the state level.
Tax Attorney
A tax attorney is a lawyer who specializes in tax law. They’re typically used for more complicated tax issues, like estate planning, tax violations, and small business financing.
Most likely, a CPA or enrolled agent will be well qualified to help you with your tax return and at a reasonable price. For really simple returns, you may even pay less than $100. For more complicated returns, you might end up paying a few hundred dollars.
Finding and evaluating professionals
Before you choose someone, you’ll want to shop around and talk to a few professionals. Ask friends and family for recommendations, search online or stop by a branch of H&R Block, a national tax preparer that offers software options as well as brick and mortar locations. There are probably local professionals in your area too, so check them out.
Be sure your tax professional can handle any specific needs your have or unique circumstances you’re dealing with. In addition to asking how much they charge, don’t be afraid to ask questions about their experience and qualifications. Some questions to consider;
-How long have they been working as a tax professional?
-What kind of licensing and certifications do they have?
-Do they specialize in particular tax issues?
-Do they outsource the work or do they do it themselves?
-Will they share your information with third parties?
Make sure they answer all of your questions honestly and openly. Remember, you’ll be trusting this person with filing your tax return.
Running a background check
It’s also a good idea to run a quick background check before signing on with a professional. You can verify the status of an enrolled agent directly with the IRS.
To check on a CPA, you can contact your state’s accountancy board and confirm the individual is licensed and find out if any disciplinary actions have been taken in the past.
Taking a minute to check now could save you a lot of trouble down the road.
Summary
When it comes down to it, we should all understand the basics of how our taxes work. And realistically, most of us can handle filing on our own. But there are some reasons why you might want to work with a qualified professional. And doing so can probably save you a lot of time and piece of mind without costing you a small fortune.
Anything else can we help you with?
