I was watching an old episode of Magnum PI on Netflix the other day with my wife. The show started out with Magnum trying to do his own taxes and everyone (meaning T C, Rick, and Higgins) sarcastically commenting on his great record keeping system because he had pieces of paper all over the table. In a country where the tax codes and the tax forms seem to be getting increasingly complex more people are needing help. While many are turning to tax software others seek out professionals. In this post I will identify the important capabilities that you should look for when you want to find a professional to help you with your taxes.
Everyone that chooses a professional tax preparer should understand that not all tax preparers are equal. Here is a story from an article by Chuck Sloan from Back Stage East (1/12/2006) about “Ed: The Tax Preparer, who was creating wonderful returns with huge refunds for all his friends, and decided to try him out. Within months the clients was already getting audited for that same year. One look at his return and I could see why: It turns out Ed was making up all sorts of numbers on the returns he prepared, and most of the clients had no idea. All they saw were the huge refunds.” Earlier in the article Mr. Sloan had pointed out that “Trying to save (or make) a couple hundred dollars a year by picking the wrong preparer – or no preparer at all – too frequently comes back to bite you. Always remember that only you will be paying the interest and penalties if deductions are disallowed.”
Everyone that chooses a professional tax preparer should understand that not all tax preparers are equal. Here is a story from an article by Chuck Sloan from Back Stage East (1/12/2006) about “Ed: The Tax Preparer, who was creating wonderful returns with huge refunds for all his friends, and decided to try him out. Within months the clients was already getting audited for that same year. One look at his return and I could see why: It turns out Ed was making up all sorts of numbers on the returns he prepared, and most of the clients had no idea. All they saw were the huge refunds.” Earlier in the article Mr. Sloan had pointed out that “Trying to save (or make) a couple hundred dollars a year by picking the wrong preparer – or no preparer at all – too frequently comes back to bite you. Always remember that only you will be paying the interest and penalties if deductions are disallowed.”
This story and reminder of the consequences demonstrates why it is so important to find a tax professional that you can trust. Now let’s take a look at the top 5 criteria that should be high on your priority list when you interview your current or tax professional.
1. A Professional that listens and understands your needs. The first thing that I would recommend to anyone looking for a tax professional is that it has to be someone that you know listens to your needs, goals, and requirements. My first rule is the old saying from Theodore Roosevelt “nobody cares how much you know until they know how much you care.” If you ask questions and feel put off or not fully understood then you should find a new tax professional. You have to have someone that helps you reach your financial goals and can do it without you losing sleep because you worry about an audit.
2. Experience is an important aspect of finding the right tax professional; however, you have to be careful. I have met many people tell me “I have 20 years in the business” like it is some badge of honor and then proceed to give some of the worse advice I had ever heard. It was like they had 1 year of experience that they have repeated 20 times. While others with less experience who could focus on your situation with knowledge of the tax rules and regulations and that have applied those in situations similar to yours can respond with far better results. So do not discount experience, just make sure it is the right kind of knowledge that can really benefit you.
3. Certification is a standard that your tax professional should have and be striving to maintain. There are three main certifications to be aware of:
a. Certified Public Accountant (CPA) – A CPA is the gold standard of tax preparation and planning. They have proven through their passing a comprehensive set of exams followed by years of experience that they can deliver successful results. The main issue here is that often CPA’s do not really engage with the clients unless they have very complex tax situations, or business clients and CPA’s are the most expensive of tax professionals. So a client that has a standard tax situation is likely to overpay and get less personal service.
b. Enrolled Agent (EA) – An Enrolled Agent is someone that has also passed a set of comprehensive set of examines. The main difference is that the EA exams are focused specifically on taxes, where the CPA exams are broader and include subjects like auditing, financial accounting, and reporting. The Enrolled Agents focus on personal and business taxes and the rules and regulations to practice in front of the IRS. This is an IRS certification and allows an EA to represent you if you are selected for an audit.
c. Registered Tax Return Preparer (RTRP) – The RTRP is another IRS certification that focuses on the preparation of tax returns. Like the EA, an RTRP has a number and is registered with the IRS and have passed an exam demonstrating proficiency in preparing taxes, however, they cannot represent you if you are called before the IRS for an audit.
4. Be careful of their advertising. If the tax professional you are interviewing offers things like big returns or fast cash then it is likely they are focused too much on the level of return that you will get and may even lead you to risky, if not improper, deductions raising your exposure to an audit and possible penalties. On the other hand if they take too conservative of an approach then you may lose out on legitimate deductions that you are entitled too. Find a professional that is focused on your goals and your risk tolerance and they can maximize your return without risking your sleep.
5. Always get referrals. All tax professionals should be able to provide you with customers that are happy with the service they provide and that are willing to talk to you. Or you can look online for survey ratings or customer feedback. Make sure you know that your tax professional can and has delivered valuable services to his/her clients. This can bring confidence to your selection.
In summary, I would like to stress the first of all the criteria. While all of the criteria that I have listed is important, I do not think that any is as important as the first; finding a tax professional that will listen to your needs and understands all of the ramifications and how best to advise you for the best result. Picking the right tax professional is a hard thing to do, but if you pick someone that has the cares about your needs and goal, has the “right” experience, has earned the proper certifications, and can refer satisfied clients you will be on the right track to a long lasting and beneficial relationship.
If you have a comment or question please feel free to comment below!
