How to Find a Tax Professional
For the 60% of Americans who hire a tax professional to do their taxes each year, selecting the right person is a critical decision that can directly affect your pocketbook. Hiring a good tax pro can translate to tax savings and useful financial advice. Hiring an under-qualified or unskilled tax pro could cost you money in lost opportunities or incorrectly completed returns. The process of finding a qualified, skilled professional is not as easy as one would think. Many people are surprised to learn that the tax preparation industry is completely unregulated (only California and Oregon have regulations) - hence there are no licensing requirements to become a tax preparer. Consequently - tax prep skill level varies widely among the pool of tax preparation providers.
Knowing what to look for, where to look, and what questions to ask are the keys to making an informed, confident decision when selecting a tax pro to do your taxes.
Understanding the various categories of tax preparation professionals is the first step in selecting a pro that meets your particular need. There are four types of tax professionals you would typically hire for preparing a tax return: retail tax preparers, certified public accounts, enrolled agents, and tax attorneys.
Retail Tax Preparers. Storefront retail tax preparers such as H&R Block and Jackson Hewitt are popular choices for millions of Americans. H&R Block, the largest retailer, prepares nearly 16% of all tax returns filed in the U.S. Retail tax preparation chains provide fast, convenient service. They are also the least expressive option when choosing a tax professional. It's possible that a tax preparer at a retail operation is a CPA - but not likely. The skill level and tax expertise can vary widely - it's basically a crapshoot as to what skill level of preparer you will get. Many employees in a retail chain are seasonal. Some retailers - like H&R Block - offer premium services that employ more experienced personnel (though the service has an added fee). People who desire convenience and speed, yet do not have an overly complex tax picture, are good candidates for a retail tax preparer.
Certified Public Accountants (CPA's). CPA's may or may not be experts in taxation - it depends on their particular field of study and work experience. To become a CPA, one has to complete four years of college and pass a state accounting exam to become licensed by the state. CPA's typically have higher tax prep fees than retail tax preparers, but generally possess more tax knowledge than the retail shops - especially in cases where tax situations have higher levels of complexity - or financial/tax advice and information are desired. To locate and verify a person is a CPA - go to State Boards of Accountancy, select a particular state's website - then conduct a name search.
Enrolled Agents (EA's). EA's are federally licensed individuals who specialize in areas of taxation - including tax preparation. Since they are licensed and trained specifically for taxation - EA's are considered a skilled and knowledgeable resource for tax advice and are most frequently employed for more complex tax situations. Not surprisingly, many EA's are ex-IRS employees. The easiest way to find an enrolled agent is going to naea.org. Similar to CPA's, in most cases an EA will cost you more retail tax preparer.
Tax Attorneys. Considered the most expensive option for tax preparation, tax attorneys are most often used by wealthy individuals whose complex financial situation requires specialized skills.
Screening Criteria to Find a Qualified Tax Preparation Pro
- Do they base their fee on the amount of the tax refund? If so - avoid at all cost
- Avoid any tax pro who claims (without knowing your financial situation) they can get a larger tax refund than a competitor
- Ask if they are seasonal tax preparers - if so; ask what continuing education they have completed.
- Do they ask a lot of questions - if so...good! A tax pro who asks few or no questions is not likely to have a complete picture of your financial picture
- Ask if they are affiliated with a professional trade group or agency. Go online to determine if the agency has a professional code of conduct
- Ask what credentials they have - for example: IRS certification, trade association membership, registration with a state agency, professional organizations affiliation
- For CPA's - check your particular states board of accountancy
- If the person is self-employed - check the better business bureau for adverse actions
It's OK to utilize word of mouth to find a qualified tax pro - but don't rely solely on this. Your specific situation is going to largely dictate what level of tax expertise you feel is necessary. For example, someone who is single, with one job and few assets should most likely not be using a tax attorney. The value you are getting for the skill level, in this situation, usually does not justify the higher cost. Perhaps the single most important screening criteria listed above is to ask for credentials. Don't be afraid to ask this question as it's a key indicator of their knowledge and skill level.