Saturday, January 29, 2011

Tax Prep 101: Hiring the Right Person for Tax Preparation

Whether it's your brother-in-law or a full fledged CPA, it just makes sense to check out the person who is preparing your taxes. One tax preparer in Edgewood, Md. was convicted and received a sentence for two years in he federal lock-up for claiming farm related losses for clients who didn't even own a farm, making false claims for deductible expenses, and overstating his client's contributions to various charities.

Most Tax Preparation Services Are Trustworthy

Yes, it is true that most of the tax prep guys out there are going to be as honest as the day is long, there are still a few that may stretch the truth and get you into some serious trouble with the IRS. There are also some well-meaning tax prep folks who simply make an occasional mistake. You just better hope and pray they don't make it on your tax return.

Tax Filing Errors are Common

Back in 2006, the Government Accountability Office conducted some undercover operations to find out just how widespread the tax prep problem might be. The GAO sent about 19 tax returns to random commercial tax preparers. Most of the returns were missing some very common deductions and all of them had mistakes. The bottom line here is that people are not getting all the money they have coming to them.

What to Look for in Your Tax Preparer

To make sure you're getting the most money back on your tax return, ask some questions:

1) Ask your tax preparer how they determine their fees. Most will simply charge a flat fee to prepare certain types of tax forms. For example, a 1040EZ should cost less to prepare than a taxpayer who has numerous investments and rental properties. Make sure you understand all the potential fees and charges and then get a quote in writing.

2) Ask your tax preparer what sort of past experience they have in preparing your type of tax return. Yes, everybody has to learn to do tax returns somehow, just not on your tax return. Resist the urge to help out someone who needs experience and go for the experienced pro who has several years preparing tax returns similar to yours.

3) Ask about any professional designations. Is the person preparing your taxes a licensed Certified Public Accountant (CPA), or just a guy who is taking accounting classes at the local night school? CPA's, lawyers, and enrolled agents are required by law to go through a continuing education program that keeps them up to date on all the latest tax laws, codes, and regulations. These pros are also going to be authorized by the IRS to represent you in case there's a problem like an audit, appeals, payment plans, or problems with collections.

4) Ask if your tax preparer has represented clients with tax issues or problems. Tax preparers with previous experience dealing with the IRS are going to be invaluable if you have a problem. They will already know what to expect and how to deal with it effectively. But, there is a downside here - you don't want tax preparer who has too much experience with the IRS. You may end up with a guy like the aforementioned gentlemen who claimed farm losses for his clients with no farm. That guy has too much of the wrong kind of experience with the IRS.

Even if you hire the best tax preparer out there, you are the one who is ultimately responsible for the information submitted on your income tax return. Make sure you keep in close communication with your tax preparer and always review and examine the return carefully before you file it.
Whether it's your brother-in-law or a full fledged CPA, it just makes sense to check out the person who is preparing your taxes.

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