Tax preparation is the process of preparing tax returns to the Internal Revenue Service (IRS). Tax preparation can be done by oneself or by a licensed professional tax preparer.
The United States has complex income tax laws that can make it challenging for individuals to prepare their own tax returns. Most individuals do not have advanced knowledge of tax laws and policies, which leaves them vulnerable to mistakes or missing out on deductions or incentives. Tax preparers alleviate that complexity as they are involved in the tax preparation process on behalf of individuals and help to prepare and file general tax forms.
Selecting a tax preparer can be challenging in its own right. The following outlines what to look for in tax preparers in Cedar Rapids, Iowa.
1. Credentials
Anyone can assist you with your tax return but if you are paying for this service, the tax preparer must be registered with the IRS. Eligible paid tax preparers generally fall into the following categories based on their credentials:
- Certified Public Accountant (CPA): CPAs are certified experts in combating tax-related issues, such as an IRS tax audit, back taxes and delinquent fees. They have passed the Uniform CPA Examination and are licensed by state boards of accountancy.
- Tax attorney: They specialize in the interpretation and application of tax laws and policies. They are licensed by the state or state bar association to practice law and are required to remain educated and follow a code of ethics.
- Enrolled agents: They have passed a three-part Special Enrollment Examination and are licensed by the IRS.
- Annual filing season program participants: This program recognizes tax return preparers who do not have other credentials. They have completed an IRS program and obtained education in preparation for the relevant tax year.
- PTIN holders: These individuals have an IRS Preparer Tax Identification Number (PTIN) but do not have professional credentials.
It is required to have a PTIN to prepare federal tax returns on behalf of other individuals. Tax professionals are often required to remain up-to-date on any tax law changes and related matters.
2. Service Fees
Tax preparers are not free nor are they cheap. The price will vary depending on the tax preparer’s credentials. Attorneys and CPAs generally have the highest rates but are the most knowledgeable in tax laws and policies. It is best to find a tax preparer with transparent service fees that are provided upfront. You should avoid tax preparers whose fee is based on a percent of your refund.
3. Trust
A tax preparer will have access to most of your personal information that you rarely share with anyone. They require information about your marital status, your income, your dependents and your social security number. Be sure that you feel comfortable and confident sharing this information with the tax preparer or their organization.
One way to identify if you can trust a tax preparer or their organization is through their procedures and processes. For example, your tax refund should be sent to you directly and you should be required to review your return before signing.
4. Availability
Taxes are a time-sensitive activity with a strict deadline of April 15th. A tax preparer should be available both before your taxes are prepared and submitted and well after submission. If by chance you were randomly selected to be audited by the IRS, you want to make sure that your tax preparer is responsive and available to help you.
5. E-File
Any tax preparer who is paid to prepare taxes on behalf of individuals is usually required to file electronically. The IRS has mandated that any professional filing more than 10 returns must file all returns electronically. This is an easy way to identify if a tax preparer is legit and has multiple clients.
E-filing is the safest and most accurate way to prepare a tax return, regardless of who prepares it.
6. Information Requested
A tax preparer should have a template of standard questions related to your total income, deductions, tax credits and others. Asking these questions and requesting records and receipts will help the tax preparer establish the tax forms required to prepare your taxes and identify relevant credits, incentives or deductions.
7. Read Reviews
The internet is a powerful place. Check the tax preparer’s history, read reviews on Google or other social media platforms, and speak to current or previous clients. If you have any doubts, you can also verify the credentials of a tax preparer through the IRS, State Board of Accountancy or State Bar Association.
Knowing what to look for in a tax preparer can help you make the right decision. It is also important for you to identify and understand your tax preparation needs, as that can help determine the necessary qualifications and expertise you require from a tax preparer.