When your life has reached the point where your financial situation has become complicated or you are so busy focusing on other items that your taxes and personal finances are not receiving the attention they deserve, it is time to invest in a professional tax advisor. Here are four things to consider before trusting someone with the important task of handling your taxes:
1. Are they certified? While this is not currently a requirement, the IRS has recently issued proposals pertaining to the future regulation of tax preparers. There are 3 types of certified advisors - enrolled agents, CPAs and tax attorneys. Each of these can represent you before the IRS in the event your returns are ever questioned.
Enrolled Agents (EAs) are tax professionals who have passed a rigorous test and background check administered by the IRS. Enrolled agents are tax specialists.
CPAs are accountants who have passed the rigorous CPA Exam and are licensed by the state they work in. CPAs will specialize in a specific area, such as audits, tax, or business consulting.
Tax attorneys are lawyers who have chosen to specialize in tax law. Often, tax attorneys will have a master of laws degree in taxation (LL.M.) in addition to the required juris doctor (J.D.) degree. Attorneys are best at complex legal matters, such as preparing estate tax returns or taking your case before the US Tax Court.
2. Are they available year-round? Even if you feel your tax situation is straightforward, it is important to work with someone who is available year-round so you can have the person who prepared your return help you in the event your return is questioned by the IRS or state taxing authority. Your advisor should also be available to answer your tax related questions as they arise throughout the year so you can make informed decisions.
3. How are their fees determined?: Professionals typically charge by the hour or by the form. Be wary of anyone who charges a percentage of your refund or who promises to get you a bigger refund that other preparers.
4. Are they an advisor or a preparer? Tax preparers simply prepare and submit your tax returns. Advisors also prepare and submit returns but also work with you on tax planning for the current and future years.
Take your time when looking for a tax professional as you will be working with this person for many years to come. Referrals are a great way to find one. Ask everyone you know: family, friends, financial advisors, business owners. It is also good to ask someone whose tax situation in similar to yours.
This is an investment in your financial well-being and you are worth the investment!
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