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.â€
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.â€
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 tax situation is a little complex, you may want to reconsider hiring that person. Find a more experienced person at the chain tax preparer.“Unenrolled and unlicensed preparers are not regulated. There have been ongoing concerns from Congress and other stakeholders about the lack of required training or demonstration of ability to apply tax law correctly for these unregulated tax return preparers,” J. Russell George, the TreasuryInspector General for Tax Administration, told the Wall Street Journal.
Do it yourself: If you only have one W-2, or your tax situation seems manageable, free online filing such as TurboTax or the IRS’ e-file, may be your best option. E-file is available to taxpayers who made less than $56,000 in 2008.
“I think when you feel comfortable with a very simplified tax situation, 1040, a 1040ez or maybe a 1040 with a schedule A, I don’t really see where it’s necessary to hire a professional,†Hankins says. “It really depends on your own abilities and how you [want to] invest your time,†she adds.
The IRS also offers free tax filing for individuals who make under $56,000. Call or visit your local IRS branch for more information.
Know your liability: Unfortunately, even if your prepare makes a mistake, you are responsible for coughing up the dough. But the daily compounded interest that accrues on money owed to the IRS can add up to an entirely new debt. Check your preparer’s policy before filing your taxes.
Hankins says the practitioner should remedy the mistake, and though the taxes would have been yours, they should pay the interest and penalties incurred. “That says the person is reputable and they care about their reputation,†Hankins says.
Shop around for preparers: Word of mouth is usually the best way to find reliable and quality services. But even still, you should double check the credentials of the preparer. Check with the Better Business Bureau to make sure there were no unresolved complaints against an agency. Contact the National Association of Enrolled Agents for a list of licensed tax professionals. The National Association of Black Accountants also offers a searchable database.
Renita Burns is the editorial assistant at BlackEnterprise.com.