Tax Preparation – What are your options?

April 15th is coming faster than you think and you are trying to decide between the “do it yourself” software and hiring a tax professional.  For simple returns, the tax software options are ideal. For lower income tax payers with W-2’s and a few 1099-INT’s, there are even free options available on-line. (Caveat:  The free options are usually for federal filing only.  States will cost money, but the Massachusetts DoR has a free filing option on their website which is easy to use at https://wfb.dor.state.ma.us/income/Default.aspx.)

Tax payers with more complicated returns or without the desire to even do taxes will need to do their due diligence in selecting a tax professional. There are essentially 4 options – certified public accountants (CPA), tax attorneys, Enrolled Agents, or tax preparers – which are explained below.

Enrolled agents, attorneys, and CPAs “have unlimited practice rights. This means they are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can represent clients before,” as explained on the IRS website. Tax preparers are limited to tax returns and restricted representation before the IRS.

CPA’s are certified by the state to handle accounting and are required to participate in continuing education.  When hiring a CPA, make sure that tax preparation is a significant portion of their business. Most CFO’s are CPA’s and can handle the finances of large companies, but they do not deal with income taxes on a regular basis.  Look for a CPA that handles tax returns and follows the tax law changes. Ask if the CPA will be doing the tax preparation or if they hire others to handle the tax returns. 

Tax attorneys are also certified by the state. Massachusetts does not require continuing education for attorneys.  You should ask if the attorney participates in continuing education – it is critical to keep current with the tax law. As with CPA’s, you need to ask who is preparing the return. Are they preparing the return, reviewing the return, or just hiring seasonal employees to do the work? If you are paying for the expertise of an attorney or CPA, make sure you are getting it.

Enrolled Agents (EA’s) are licensed under the IRS Return Preparers Office.  An EA must take 3 tests, pass a background check, take continuing education, and re-apply every three years.  As with CPA’s and attorney, ask if the EA will be handling your tax return or if an employee or contractor is doing the work.

“Tax preparers” have no official credentials. Some are excellent but others may be inexperienced or worse.  If you plan to use a tax preparer without formal credentials, ask about their background and their continuing education.  Make sure they are signing the return with you.  While taxes are your responsibility, the tax preparer should stand behind his/her work and sign the return.

Now you might be wondering about the nationally known tax preparation locations. Most of these companies provide training to their employees and require some annual training. A small percent are EA’s but most are just preparers.  Ask your preparer about their level of experience.  Also, find out if they have an office open year round. The IRS usually notifies people of issues well after April 15th so keep the address and phone number of the year round office with your tax documents.

Beth Logan is an Enrolled Agent for Kozlog Tax Advisers in Chelmsford.  She can be reached at info@kozlog.com.