The Cutting Edge: Don’t Get Taken By Your Tax Preparer

Diligence could save you trouble and money

We’re in the heat of tax season and if you haven’t filed yet, a bigger issue may be where or with whom to file. After all, with Timothy Geithner, Tom Daschle, and a slew of presidential nominees having had botched tax returns, the average Joe might want to be a little more cautious about the tax process.

Though only about 1% of tax returns are actually audited, it’s important to file your taxes accurately, otherwise you could be overpaying or underpaying — both a lose-lose situation for you. A study done by the Government Accountability Office (GAO) found that services done by H&R Block and a few other big chains brought about unwarranted extra refunds of up to almost $2,000. In some cases, the preparers cost the taxpayer more than $1,500.

Finding a tax preparer “is something that you should take the time to research,” says Donna Hankins, certified financial planner and founder of Donna Hankins & Associates. “Seek out not only someone you believe is providing you good tax advice and a service, but someone you feel comfortable with and you can build a good relationship with.”

So, from do-it-yourself to finding a professional, here are some tips to make sure filing your taxes goes smoothly this season.

Research your tax preparer: Uncle Sam is a formidable opponent. You wouldn’t go into the playoffs without your star player, so don’t turn to any old Joe when it comes to filing your taxes. If you’re searching for a tax professional, interview your prospects thoroughly.

“Find out about their education and work experience,” Hankins says. Also, give the person a brief overview of your tax situation, such as whether you’ve purchased or sold a house or are in the midst of a divorce, so he or she is aware of what they’ll be working with. “In the interview process, the tax person should be asking you questions too,” Hankins says.

“Are you self employed? Do have rental property? Have you sold stock? Listen to what the person is saying about your particular situation,” she adds. “Typically assume just because someone is a certified public accountant they have a lot of experience with taxes that may not be the case.”

For more on what to ask, check out Tips for Choosing a Tax Preparer.”

Don’t just rely on professional tax services: While large chain tax prepares can seem like a sure shot for professional help, this may not be the case. The GAO found that in several case studies these large preparers failed to take the most advantageous postsecondary education tax benefit. Some even failed to itemize deductions at all or failed to claim all available deductions.

Even if you decide to use their services, be thorough in checking out who will be handling your paperwork. Many times, the preparers are trained part-time employees. The benefit is that the services are relatively cheap, about $100 or so. If the person is an unenrolled preparer and your

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  • deebee

    Also, if you are a member of any business or professional association, then ask around as to who they would recommend. In addition, if you are not a working professional, but know a particular business owner that you admire their business skill and steadfastness, you might venture to ask that individual for a reference.

    More importantly, ALWAYS keep excellent records of all transactions both business and personal. Even when you sold Jr. that car! – or – Allowed your friend to use the car for any period of time based (in writing) on that person paying for all damages, repairs and gasoline stemming from that trip! Not only saves you a trip to the judicial court’s, but also saves you from IRS penalties!