Choosing a tax preparer can be as complicated as doing the return yourself.
There are myriad options, and they are not created equal. That's because there is no federal law regulating paid tax preparers outside of those with designations such as certified public accountant or enrolled agent. Although the major tax-prep chains— H&R Block, Jackson Hewitt— do require their tax pros to go through many hours of training and pass internalexams.
Still, just four states — New York, California, Oregon and Maryland—require paid tax preparers to meet certain standards if they don't already possess a recognized credential, which is why experts say people need to do their research when it comes to entrusting someone with their tax returns.
Most people do turn to the pros,too. Last year more than 78 million returns were filedthrough a paid preparer, vs. more than 50 million that were self-prepared, according to the Internal Revenue Service.
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If you're looking for some help heading into tax season, here's who you might run into:
• Enrolled agent.These are professionalscertified by the Treasury Departmentspecifically to deal with tax-related issues and represent taxpayers in front of the IRS — which is basically a fancy way of saying they are official tax experts. Enrolled agents have to pass a three-part exam and a background check, or have worked for the IRS for at least five years in a position that required themto interpret the tax code.
They also have to adhere to certain ethical stands— e.g., you can't charge a percentage of a client's tax refund as the fee for doing their return— and complete a minimum number of hours of continuing education each year.
• Certified publicaccountant.CPAs are licensed financial experts, though they don't necessarily focus entirely on taxes. They deal with clients'personal finances andaccounting needs, too. Like enrolled agents, they also have to pass an exam plus complete a certainamount of work experience. Most of them are likely equipped to file tax returns.
"The vast, vast majority of CPAsin public practices have to know about taxes because that’s a big, big portion of their business," says Michael Eisenberg, a CPA at Miller Ward &Co.in Encino, Calif.
• Tax-prep chains.National companies like H&R Block and Jackson Hewitt have some licensed professionals— H&R Block has 8,500 enrolled agents out of 80,000 tax professionals it employs duringpeak tax season. Jackson Hewitt has 25,000 tax preparers. Both companies require every preparer to pass aninitial exam. Jackson Hewitt requires its pros to pass its exam every year; H&R Block requires a minimum number of hours of continuing education each year plus testing in order to achieve a higher certification level.
If you go through one of these tax offices, you also have the benefit of certain protections that leave you off the hook if something is amiss with your return. For example, if H&R Block makes an error on your return, the company will pay any resulting penalties.
•Volunteer Income Tax Assistance.This IRS program provides free tax return help to several groups of people, generally those with annual incomes of $54,000 or less, the elderly, disabled and those who speak limited English. The program had more than 90,000 volunteers last year, who all have to go through at least a basic training course and pass a certification test.There are VITA sites across the country, often in places such ascommunity centers and schools.
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Tax-prep red flags:
• Fee structure. Ask questions upfront about how you'll be charged for a professional's services.CPAs and enrolled agents are not allowed to charge you based on the size of your refund. The tax-prep chains like H&R Block generally charge based on the complexity of your return, not your refund.
• Trust your gut. You may be on to something if your interactions with your tax preparer just don't feel right. Does it feel like they're trying to get you a bigger refund by bending a few rules? "Ifthe preparer is saying things that don’t really add up, then some bells should go off," says Steve DeFilippis, an enrolled agent who runs a financial practice in Wheaton, Ill.
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