What's it worth?

In these tough economic times, everyone is trying to save a buck. So it's not surprising that tax season is a stressful time for some one who's not sure if they have to pay, what to expect at tax time, and last and sometimes, least - how to afford a good tax preparer. Many taxpayers are cutting back and looking to switch from they CPA or tax preparation firm to a more economical option. There are few options out there, but Caveat emptor - not all tax preparation options are created equal. Of course, we all want to be sure and safe, but the CPAs fees can be in range of hundreds of dollars, and that is not something everyone can afford these days, even for a peace of mind. Tax preparation firms that are not operated by a CPA can still be expensive - Enrolled Agents, Tax Attorneys etc are also highly qualified and extensively educated professionals who can command high fees. In addition, these firms almost always provide additional services. Even if you decide to use one of these professionals, do not be afraid to ask for their license number and check on them with the Board of Accountancy, IRS or State Bar. You may find their license is expired or revoked due to some reason or another. It's free to check and highly recommended.

Next option is a Franchise tax preparation firm, often called boutique or discount tax service, those are your H&R Blocks, Jackson Hewitts and Liberty Tax offices you see at strip malls. They are usually cheaper, however, if you have a complicated return they might still costs you alot, since these firms charge per-form, and the more forms you have, the more your return will cost you. They also are nor equipped to handle highly complex tax matters. In addition, the franchised tax preparation services have come under investigations and law suits, resulting from fraudulent return filings, overestimating deductions and falsely increasing refunds, and overcharging and not disclosing Refund Loan fees and interest rates. While in CA the tax return preparers have to be licensed, the franchises rarely offer any substantial training to their employees, and this results in very inexperienced employees who rely heavily on the software, and often don't know basic tax law that apply to specific taxpayers. I only recommend these places if your return is super simple with little room for error (and I haven't met many people like that...). Lastly, come April 16th, these offices are often closed till fall, and it's hard to get an answer if something went wrong. If more time has passed, the office will have new employees and sometimes new managers that don't know anything about you or your return, and that's if you're lucky - sometimes that office might not be there at all few years later. If there was a mistake or your got audited, you're on your own, scrambling to figure out how to deal with "friendly" IRS representatives or paying high fees to a tax attorney to get you out of the mess...

Next, we take a look at tax preparation software, readily available for purchase or online. Many services are free for a Federal return and only charge a small fee for your state return. These may seem like a good option, however, your return should be pretty simple to attempt it yourself. The software will walk you step by step through all the required parts of the return - Income, Deductions, Exemptions, Credits, and hopefully - refund! But, the software is only as smart as the person using it. While it's programmed to ask questions and detect certain errors and red flags, that's all it can do. It can't interpret the law, detect possibility of multiple scenarios and offer advice on how to proceed. It also can be misleading and cause the taxpayer to take deductions she doesn't qualify for, or quite the opposite, miss something when the taxpayer wasn't aware of the issue and didn't include something on the return. Many taxpayers will see an unfamiliar term or a complicated question, and skip it assuming it doesn't apply to them. This can turn out to be quite costly.

I always recommend using a qualified and licensed professional to prepare your tax returns. While anyone in the US can prepare taxes for a fee, only a few States have licensing requirements. Your tax preparer should be licensed if you live on one of those states - California is one of them. Check with CTEC on your tax prepares' license status. A preparer must be licensed if she is not a CPA, Attorney or Enrolled Agent. Licenses on those credentials can be checked as well through the issuing agencies. In addition, ask your tax professional about their education and experience. BS in Accounting is desired, any education higher than that is a plus. Any education in area of taxation can give you a peace of mind that your preparer put some effort in her field of expertise. Ask them how long they have been in the tax field, whether they receive alot of referrals or do their clients leave after one tax season? A competent tax professional will have their own tax software, and an office environment conducive to the high intensity of tax season.
Once you chose your tax professional, do not be afraid to talk money right away. Ask how much the return will cost, what are the payment procedures and options, and what are your options in case you are not satisfied with the service. The preparer should provide you with engagement letter which spells out the terms of services provided, costs, responsibilities of both parties and expectations. This tells you the preparer is serious and interested in clarity and understanding from both parties right from the start. In addition, ask what are the record keeping procedures, will you be offered an e-file, will you get a copy of the return. Many preparers might assume that you know the "rules", that is a mistake. Always approach a new professional relationship with caution and do your due diligence to find out as much information as possible to make it a good working relationship.
With some research and knowledge under your belt, you can find the best and most cost effective option suitable for you and your unique tax situation. As always I am available to answer any additional questions on the topic.

Lets have a stress-free tax season!