Many taxpayers are starting to receive W-2 statements, 1099
and other forms in the mail to report income earned in 2013. Many taxpayers have begun to organize their
documentation to prepare to file their taxes as early as this month. There are many options available for
taxpayers to file taxes such as: filing by paper and mailing your returns,
filing electronically, hiring a tax professional or doing your taxes yourself.
There are so many tax preparation software packages and tax professionals it
can become overwhelming and confusing trying to decide which one is best for
you. According to FranchiseHelp Holdings there are approximately 38,287 tax
preparations companies in the U.S. Approximately 144 million taxpayers filed tax
returns last year.
They are several types of tax professionals: certified
public accounts (CPAs), tax lawyers, enrolled agents (EAs) and people who
learned how to prepare taxes on their own with or without appropriate education
or training. Prior to preparing your taxes you need to perform an
assessment to see what type of tax professional you need or if you can file
your taxes on your own using tax preparation software.
Tax preparation software has all
the tax laws integrated into the tool and can be helpful if your taxes are
complicated such as running your own business or claiming tax credits or
deductions. However, there may be some deductions that you are missing out by
using a tax preparation software.
Accountant vs CPA
An accountant has to abide by specific rules and
regulations, including Generally Accepted Accounting Principles (GAAP). CPA's
are accountants who have passed a licensing examination in a state. All CPA's
are accountants, but not all accountants are CPA's. An
enrolled agent is not a CPA or accountant. They take classes, pass an exam and
earn a certification from the IRS.
An accountant or CPA can offer suggestions to minimize your
tax liability that a tax preparation software may not be able to anticipate or
inform you of. An accountant or CPA can
answer any questions you have throughout the year not just during tax time. An
accountant or CPA is very familiar with the tax laws and can quickly perform
research on a tax issue or question versus spending hours by someone who does
not have the same education and training.
If you are self-employed, have tax credits or deductions, have
multiple income streams or investments, are itemizing or owed taxes in the past
you should hire a CPA. Ask bank employees, lawyers, co-workers, friends or
relatives for recommendations.
I recommend using a CPA who
specializes in tax preparation. Consider hiring a smaller CPA company that
focuses on your particular demographic.
Large CPA companies usually focus on corporate taxes, court cases,
audits and other complicated tax issues. They charge a higher fee for tax
preparation and may not be willing to prepare taxes for an individual.
Tax Preparation Companies
Some tax preparations companies recruit students,
stay-at-home moms or retirees to help them during tax season who may not be
qualified to prepare taxes. Some may even call them data entry experts. The
most popular tax preparation companies are H&R Block and Jackson
Hewitt. Not all employees at these types
of companies are CPAs or accountants. Due to this you may miss out on
deductions and credits. Mistakes may be made and you may be at higher risk for
an audit.
Some tax preparations companies use a similar version of tax
preparation software that taxpayers use. They ask clients questions regarding
standard tax forms and enter the data. These
companies in some cases overcharge for their services charging per hour while
some charge per form. In some cases
hiring an accountant or CPA is cheaper than going to a chain tax preparation
company.
If you decide to use a tax preparation company and don’t
want to pay their fee, you don't have to pay. You can take your paperwork,
leave and look for another company to prepare your taxes.
Some chain tax preparation companies put a protection clause
or an arbitration clause in their contracts which
prevents taxpayers from suing them in court, and prevents taxpayers from filing
a class action lawsuit due to mistakes made.
Avoid chain tax preparation
companies that offer to sell you additional productions such as “rapid
refunds”, “refund anticipation loans” which comes with a fee. In addition,
these methods require approval, are not guaranteed and you are better off using
direct deposit to get your tax refund faster. No one can guarantee when you
will get your tax return back, not even the IRS.
If a mistake is made by a chain tax
preparation company you may be accountable for the mistake and it may cost you
money. However, some chain tax preparation companies may sign your tax returns
on your behalf or may offer a service to review your taxes to ensure you are
not at risk for an audit - however this should be included in your tax
preparation instead of an additional fee. If you have not been audited it doesn’t mean
you never will. The IRS can take up to 3 years to perform an audit or go back
further if major issues are detected.
If a tax preparation company offers a short course on how to
prepare taxes run. You cannot learn how to efficiently prepare taxes in one day
or by taking one course. CPAs have extensive education, have to pass a test and
have to keep their license active by taking continuing education classes.
Be wary of people or companies that brag about getting you
large refunds without ever seeing your taxes or knowing anything about you. When
looking to hire a tax professional things to consider are: qualifications, licensed in your state (some
tax preparers will prepare taxes even if they are not licensed in your state), experience,
past references, work hours, professional reputation, trustworthiness, professionalism,
professional memberships, your specific tax needs, comfortability and capability.
Tax Lawyer
You should hire a tax lawyer if you have received any
notices from the IRS to appear in court, a lien or judgment has been filed
against you by a tax authority, you owe a large sum of money to the IRS, you
are a business owner with partners or investors, you need to raise capital for
your business, or you founded a non-profit company.
