If you’re like most people, you’re planning to hire a tax professional to prepare your tax return instead of doing it yourself. There are several different types of tax pros. They differ widely in training, experience and cost.
As the name implies, tax preparers prepare tax returns. The largest tax preparation firm is H&R Block, but during tax time many mom-and-pop operations open for business in storefront offices.
In most states, anybody can be a tax preparer — no licensing is required. However, starting in 2011, registered preparers were required to take continuing education courses and pass a competency exam. Nevertheless, many tax preparers don’t have the training or experience to handle taxes for businesses and, therefore, are probably not a wise choice.
Enrolled agents (EAs) are tax advisers and preparers who are licensed by the IRS. They must have at least five years of experience or pass a difficult IRS test. They can represent taxpayers before the IRS and in administrative proceedings, circuit court, and, possibly, tax court, if they pass the appropriate tests. Enrolled agents are the least expensive of the true tax pros and are reliable for tax return preparation and more routine tax matters. They can be quite adequate for many small businesses.
Certified public accountants
Certified public accountants (CPAs) are licensed and regulated by each state. They undergo lengthy training and must pass a comprehensive exam. CPAs represent the high end of the tax pro spectrum. In addition to preparing tax returns, they perform sophisticated accounting and tax work. CPAs are found in large national firms or in small local outfits. The large national firms are used primarily by large businesses. Some states also license public accountants. These are competent but are not as highly regarded as CPAs.
Finding a tax pro
The best way to find a tax pro is to obtain referrals from business associates, friends or professional associations. If none of these sources can give you a suitable lead, try contacting the National Association of Enrolled Agents or one of its state affiliates. You can find a listing of affiliates at the NAEA website at www.naea.org. Local CPA societies can give you referrals to local CPAs. Be aware that CPA societies and local bar associations refer from a list on a rotating basis, so you shouldn’t construe a referral as a recommendation or certification of competence.
Your relationship with your tax pro will be one of your most important business relationships. Be picky about the person you choose. Talk with at least three tax pros before hiring one. You want a tax pro who takes the time to listen to you, answers your questions fully and in plain English, seems knowledgeable, and makes you feel comfortable. Make sure the tax pro works frequently with real estate professionals. A tax pro already familiar with the tax problems posed by your type of business can often give you the best advice for the least money.
Starting in 2011 all paid tax preparers became required to register with the IRS and obtain a Preparer Tax Identification Number (PTIN). Make sure any preparer you hire has a valid PTIN.
A paid preparer must sign the return and include their PTIN. However, although the preparer signs the return, you are responsible for the accuracy of every item on your return. The preparer must also give you a copy of the return.
Stephen Fishman is a tax expert, attorney and author who has published 18 books, including "Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants," "Deduct It," "Working as an Independent Contractor," and "Working with Independent Contractors." He welcomes your questions for this weekly column.