Just over half of all taxpayers (51%) hire a tax preparer when filing their return, according to the most recent IRS data. Picking the right pro can save you a lot of stress if you're not comfortable navigating the intricacies of your return, while also helping you maximize tax breaks and reduce your tax bill.
But tax fraud is a $1.8 billion-dollar-a-year problem, according to the IRS — and several scams the agency warns about in its annual Dirty Dozen list involve shady tax preparers who inflate refunds or falsify income, among other dishonest practices. Choose the wrong person to work with, and you could risk expensive consequences like tax penalties, an audit, or identity theft.
"Some tax preparers cheat and they lie," says Mark Prendergast, a certified public accountant and the director of tax strategies at Inspired Financial in Huntington Beach, California. "They've played the audit lottery, and they may get [clients] bigger refunds than they deserve."
These two tactics can help you avoid scams and find a qualified tax preparer:
Hiring a qualified preparer is one of the easiest things you can do to protect yourself at tax time.
Every paid tax preparer in the United States is required to register with the IRS, which will issue them a PTIN, or Preparer Tax Identification Number. You can use the agency's online directory to check the PTIN of any tax preparer you're considering.
Having a PTIN doesn't mean the IRS has endorsed a preparer. It just means they're legally allowed to prepare your taxes. Experts say any preparer who claims otherwise should be treated with suspicion.
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While there are many different kinds of qualifications a tax preparer may have, most pros you might hire will fall into one of three categories, according to the IRS:
- Non-credentialed preparer: Non-credentialed preparers are registered with the IRS solely to prepare taxes, and generally handle fairly basic returns for individual filers. Most of the seasonal preparers working at big tax preparation company storefronts will fall into this category.
- Enrolled agent: Enrolled agents are licensed by the IRS and need to pass a series of exams to get their credentials. They handle more complex federal and state returns for individuals and businesses, and can represent you before the IRS if your return triggers an audit.
- Certified public accountant: CPAs are licensed by state accountancy boards, which hold them to strict ethical standards. CPAs often work with clients to handle all sorts of financial matters beyond their taxes, although many do specialize in tax prep and planning.
It's also smart to look into a preparer's history. Sites like CPAVerify.org can tell you if a CPA is in good standing, and if they have had any complaints or disciplinary actions brought against them, while the Better Business Bureau and Yelp may have reviews from prior clients.
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Tax preparers typically bill in one of two ways: a flat rate or hourly. Simple returns are more often covered with a flat rate, while hourly rates are common for more complicated finances, since it's harder to judge the amount of labor that will eventually be involved.
Steer clear of preparers who base their fee on your final refund, warns Sarah Shannonhouse, manager for tax practice and ethics at the Association of International Certified Professional Accountants. "They're much more encouraged to try to find tax loopholes and things that may not be legal in order to get you a bigger refund, so then they in turn can get paid for that," she says.
Any offer of "free" services as part of a paid preparer's package is a red flag, too, says Prendergast. For example, a preparer might offer to file the federal return for free, while charging exorbitantly for the state. Or they may file the first W-2 for free, but charge far more for any additional ones.
At the end of the day, no matter who prepares your taxes, you're responsible for the accuracy of your return. So carefully review yours before you sign it and file, Prendergast says. That gives you a chance to make sure everything is complete and accurate.
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