We are in the midst of tax season, the period between early January and April 18 when 2016 income taxes are due. If you're interested in how to do your taxes with the help of a tax preparer, you may start by asking friends and similar business owners which tax preparers they use and what they think of their services. By approaching the best of these firms, you may have a head start in picking the person that's best for you.
As it is your tax return and you will be paying for the service, you may want to interview potential tax preparers to find the best fit for you. For many years, I prepared my own taxes using home tax software. But as the rules kept changing and becoming more complex, I went shopping for a tax preparer. What follows are some of the questions you may want to ask and answers you may want to hear from a tax preparer.
1. How many and what type of clients do you prepare tax returns for?
You want to know if they specialize in personal returns versus business returns, and if the tax preparer has experience working with businesses of a similar type (e.g. retail, manufacturing, e-commerce, service, consulting, etc.) and similar size and complexity (e.g. multiple entities, multi-state sales or operations, foreign operations, imports, etc.) to yours.
If you are in the majority, then the tax preparer most likely knows the regulations affecting your situation. He or she may have worked out best practices for how to do your taxes, including finding tax deductions.
2. How many clients have left your firm and for what reasons?
All companies have customer turnover, but you may want to make sure it is not the result of service quality. Are clients leaving because of sloppy work, price, difficulties in making contact or not supporting client on an audit? You may want to find out.
3. Of the returns that you've worked on, how many have been audited by the IRS or state tax agency? What was the reason?
If the returns have been audited because of aggressive deductions you should be concerned. Conversely, if there have been no IRS audits maybe the tax preparer is too conservative.
4. Of the returns that were audited, how many were resolved in the client's favor?
Their answer to this question may mean that the tax preparer will take full responsibility for how to do your taxes.
You want to know if the tax preparer just fills out the tax return or if he also goes to bat on your behalf if the IRS raises questions. If the tax preparer has achieved "enrolled agent" status, he or she can represent clients before the IRS.
5. How is the fee calculated and what does it cover?
Fees are typically based a dollar per hour basis with an estimated total. This is particularly true in the first years of a relationship, as you and the tax preparer are still learning the amount of work involved and its complexity. I don't recommend working with someone whose fees are based on a percentage of the refund or of dollars saved. This may hint that the tax preparer may be overly aggressive.
A tax preparer's fees cover the annual tax return and quarterly estimated tax filings if you need these. You may want to ask who pays if the tax preparer needs to research a topic and if your calls are covered in the base fee or charged separately.
6. How many people do you have on staff? What are their experience and credentials? Who will do the actual tax preparation work?
The boss may be involved and take responsibility, but a more junior tax preparer may do the bulk of the work. If that's not the case, it can get very expensive. Hopefully any junior tax preparers are CPAs or studying to be a CPA. It also helps if they have a few years of tax preparation experience and are closely supervised by the expert you have selected.
7. Are you licensed to prepare IRS and State tax returns?
Tax preparers who have an IRS Preparer Tax Identification Number (PTIP) and will sign the return as the tax preparer may be more likely to take responsibility for their work.
8. How are tax refunds handled?
Tax refunds are made directly from the IRS or State to you. If the tax preparer says the refund will be deposited with them, then you may want to reconsider working with them: It is not a best practice to have the tax preparer involved and it can be another step for you to get your funds.
9. How do you learn about changes in the tax code?
It's nice to know that the firm is committed to furthering their education and expertise! The more they update their information, the better they'll know how to do your taxes.
10. Have you received any reprimands or warnings from a professional association?
If your tax preparer is a CPA, he or she will be subject to review by the American Institute of Certified Public Accountants. The IRS has a process for reporting any problems encountered with tax preparers that you may also want to check out.
The result of my interviewing tax preparers and asking these questions was the selection of a firm that has handled my taxes, initially and as my business has changed. I have been audited just once and after a six-month process, the IRS found no changes were needed.
Questions Your Tax Preparer May Ask You About How to Do Your Taxes
My tax preparer Stephen G. Perry, partner at Snyder Cohn in Bethesda, Maryland, says he has two questions he asks prospective small-business clients: “What is the source of your accounting information: self [or] spouse, company financial staff or outsourced, and why are you changing tax preparers?"
From the first question, Perry says he can judge the ease or difficulty of obtaining the needed tax return information and from the second a sense of the client's objectives in a new relationship.
"The most common reason business owners change tax preparers is they outgrow the prior arrangements," Perry says. Once a relationship is established, Perry says one of the first topics of discussion is “tax planning and cash-flow planning for tax payments, as often small-business owners do not have the cash needed on the various tax payment dates and to be late in making payments is costly."
With this information on the questions to ask and the questions you might be asked, you know more about how to do your taxes and you are ready to look for a tax preparer. If you already have a tax preparer, some of these questions may be appropriate to clarify an ongoing relationship.
Read more articles on tax preparation.
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