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What The Self Employed Should Look For In A Tax Preparer

The best way to find a tax preparer is a referral. The personality fit is very important. You are looking for someone you can talk to about money. That is a touchy subject and needs a high comfort level. You need to look for basic competence; your preparer should know the easy stuff without looking it up. Beyond basic questions consider asking about some of the following issues.

Not only should you ask how many tax returns an accountant does but also “what kind?” If you are a schedule C taxpayer you need a preparer who does a lot of schedule “Cs”. Don’t let them off the hook when they give you a general answer like, “Oh, we do a lot of them” their tax software keeps track of such things and they should know an exact number.

The next critical question is “who does the work?” If the tax preparer you are talking to delegates all the work to some kid in the back room fresh out of school, the $175 per hour fee is not justified. There are some firms who are even subcontracting out tax preparation to India. You also might note US laws on confidentially are not enforceable in India.

Generally a good tax person should be able to suggest something to you. There has to be something about your financial situation related to taxes deemed worthy of their comment.

At the other end of the spectrum be very wary if the tax preparer makes many suggestions and also sells things. Like refund anticipation loans, brokerage, insurance or other financial investments. This is a conflict of interest and it taints their advice. You want them on your side fighting the IRS not thinking about how to make commissions out of your pocket.

Find out if they handle multiple states. If you are nearing retirement and moving to Arizona do they have the capability to do the home state and the new retirement state? A permanent move normally requires a change of tax preparer. State laws have little quirks; the local guys are up to speed on. An out of state preparer either takes a lot of time to come up with the answers or misses the little stuff.

Ask how the fee is determined. Some do it by the hour some by the schedule. Ask for an estimate. If it is based on a per form fee schedule ask for a copy of the fee schedule. Look at your last year’s tax return and determine what it would have cost based on their fee schedule. The prior year’s tax preparation fee is usually listed under miscellaneous itemized deductions. Tax preparers, who are asked for an estimate, will ask to look at the form and casually glance at what you paid in the prior year. Few will charge less. Ask for their fee schedule and do the calculation yourself. Then ask if that sounds about right.

Lastly you might ask what happens if you get into an audit. The chances are remote but it does happen. Some firms offer, “audit insurance”. This “audit insurance” is normally not a good economic deal for the taxpayer. Just ask how many audits they have had on taxpayers in the last three years. Again do not be put off by a general answer. They know the number, there are not that many of them.

Don’t confuse a notice with an audit. If you do get a notice, and they are common, audits are not, what happens? Will the tax preparer answer the notice as part of preparing the tax return?

Tax accountants are a straight-laced bunch. If they have been around for a while they have seen a lot of the problems including the ones similar to yours. They can be a very valuable source of expertise. Just make sure they are on your side and have no conflicting loyalties.

One final thought, when you find someone you are happy with stick with him or her. Their value grows the more years you deal with them. They come to understand your situation, goals and problems and over time they can give you helpful advice.

John Murray is a CPA in New Brighton MN and has worked with self employed taxpayers for over 30 years. He is the author of numerous tax articles and a travel book Lake Superior Wow!, a kids guide to 99 fun things to do in Duluth and along the North Shore, Marlor Press 1993.
 

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