April 15th is taxing enough without blowing big bucks on paid preparers that are either overkill or over-priced. If you’re going for the human touch, here’s how to pick the right pro.
As long as you file your taxes on time and accurately, the IRS doesn’t care if you do it with a dull pencil or with the assistance of a $500/hour tax attorney. But if you’re going to pay a pro, don’t overpay. In fact, for many people, there’s no reason to pay at all.
Check out this recent news story I did on free tax help. The bottom line of that story is that if you made $49,000 or less last year, it will cost you zip to sit across the desk from a live, human tax preparer (albeit a volunteer.) And even if you made more than that, if you’re willing to do varying degrees of the work yourself, you can still file free.
If that doesn’t do it for you, two other options are to buy software and install it on your computer, or use an online-only software preparation service. Of these two options, online generally offers more choices and lower prices. There’s a ton of online companies to pick from: one way to check out a bunch in one place is at the IRS freefile website: that’s the website set up for those who qualify for free filing, but it links to a lot of online companies that will also accept money.
For the vast majority of people, software is the perfect solution for taxes. Because while income taxes may seem exceedingly detailed and complicated to you, doing math and remembering a few thousand rules and variables is exactly what computers were invented to do.
Still insist on the human touch over software? You’re certainly not alone. According to this survey commissioned by H&R block and performed by Ipsos, more than half of Americans plan to use some form of human help to get their taxes done this year. Check out this 90-second news story I just did on picking the right one. Then meet me on the other side for more.
Now let’s recap the tips from that TV news story and add some more:
The way your hire a tax preparer is the same way you’d hire any human help from a contractor to a lawyer to a mechanic to a doctor.
- Ask your friends or co-workers for referrals: but try to determine that their situation somewhat similar to yours.
- Check out credentials. In order of most-educated when it comes to taxes, there’s tax attorney, then CPA, then enrolled agent. There are also other designations, and none: professional credentials aren’t required to charge for tax preparation.
- Ask about experience. A license and education are nice, but experience is crucial. Especially experience in dealing with people in situations similar to yours. The more, the better.
- Ask for referrals. Any professional in any field should be happy to provide them. Of course, only an idiotic professional would provide you with a customer that’s going to bad-mouth them, however, so you can’t put too much weight on this one.
- Talk to several before you decide: easily the single most important thing before hiring virtually anyone. Only after talking to several people will the positive attributes you’re seeking surface in one of them.
- Ask about continuing education: take it from someone who’s skated through correspondence courses simply to keep a license active: this isn’t a guarantee that they’re up to speed. But it’s better than nothing.
- Ask about professional organizations they belong to: again, not the be-all and end-all, but might be an indication they at least take an interest in their profession.
- Make sure they’re around all year. You could need help with an audit in August.
- Compare prices. If one pro charges more than another, what are they going to do for you to justify the premium price?
And keep this in mind: when you decide against do-it-yourself software and enlist the personal service of a pro, you may not be accomplishing much other than creating a bigger bill. That’s because virtually every human tax preparer is also using software to prepare your return. You’re giving them your information, and they’re doing the same thing you could be doing: inputting it into a software program that spits out a completed return. In other words, in many cases when you’re sitting across the desk from a tax professional, what you’re really doing is paying someone from $50 to $500 an hour to do your typing for you.
So why go to a human preparer? There’s only one reason: sometimes human beings can do things that software can’t. For example, by asking the right questions they can ferret out deductions that software might have missed. Or by getting to know your situation, they might help you formulate a strategy to minimize future taxes, or answer other financial questions you might have. While most modern software does ask you questions, provide answers and try to help with strategy, it will never be a match for an expert human brain.
So don’t be penny-wise and pound foolish: if a pro can really help you, buck up. But if you don’t need or don’t receive valuable personal advice, don’t pay for it. Use software and do your own typing.
When it comes to tax preparation, I think way more people pay for personal service than should. Picking a pro over software is like picking the Hyatt over the Holiday Inn: if you’re not going to enjoy the frills, you’re wasting your money.
Bottom line? If you’re going to pay a pro, ask as many questions as you can about strategies to minimize your taxes and get enough sensible, specific, actionable advice to offset the additional cost.