Taxes 2011 – 9 Tips to Find a Tax Pro: But Do You Really Need One?

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There are any number of ways to file a tax return: You can do it yourself, use software…or go to a professional. The IRS isn’t particular.

You, on the other hand, should be particular about who does your taxes, for a very simple reason. Because regardless of who helps fill out your return, you’re going to sign it, and you’re going to be the one responsible for it. So it pays to have your taxes done right.

Starting this year, the IRS began a system to track everyone accepting money to prepare returns. All preparers must have a Preparer Tax Identification Number, or PTIN, and eventually all must demonstrate at least some knowledge of the Federal tax code by passing an exam. Once they do that, they’ll earn the designation of IRS Registered Tax Return Preparer. It’s something you should ask about wherever you get your taxes done this year, and every year from now on.

But that’s not all you should ask about. Check out the following news story we recently shot about finding the right tax pro, then meet me on the other side for more…

Before we get into more detail about picking a pro, let’s address a more fundamental question: Do you really need one?

Human help – many pay for it, few need it

Check out this recent news story I did on free tax help. 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. And even if you made more than that, if you’re willing to do varying degrees of the work yourself, you can still file for free.

If that doesn’t work for you, two other options are to buy software and install it on your computer, or use an online-only 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 Free File website. That’s the website set up for those who qualify for free filing, but it links to a ton of online companies that are happy to accept money from taxpayers in all situations. And as with many things in life, you’ll find that companies that don’t advertise heavily often cost less.

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 is exactly what computers were invented to do.

If that doesn’t convince you, maybe this will: 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.

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 receive valuable personal advice, don’t pay for it. Use software and do your own typing.

But if you decide you need that human touch…

9 Tips to find the right tax pro

The way you 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.

  1. Ask your friends or co-workers for referrals: especially if you suspect their tax situation is somewhat similar to yours.
  2. Check out credentials. In order of education and price, when it comes to taxes, there’s tax attorney, then CPA, then enrolled agent. There are also other designations, and none: Other than the Registered Tax Return Preparer designation mentioned above, professional credentials aren’t required to charge for tax preparation.
  3. Ask about experience. A license and education are nice, but experience is crucial, especially experience in dealing with people in situations similar to yours. If you can get someone with 30 years’ experience for the same price as three years’ experience, that’s a no-brainer.
  4. 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, so you can’t put too much weight on this one.
  5. 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.
  6. Ask about continuing education. Take it from a CPA (me) 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.
  7. Ask about professional organizations they belong to. Again, not the be-all and end-all, but it might be an indication they at least take an interest in their profession.
  8. Make sure they’re around all year. You could need help with an audit in August.
  9. Compare prices. If one pro charges more than another, what are they going to do for you to justify the premium price?

Bottom line? Most people start their search to find the right pro before considering if they even need one. If you’ve got a complex situation, have questions that need answering, or want to talk strategy, great: Hire someone.

But don’t pay three (or 30) times more than you have to just because you’ve always done it that way. Or worse, because the commercials told you to.

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