6.06 – Should You Be Paying for Tax Help?
Navigating the complex and often confusing tax code can be daunting. Fortunately, various tax professionals are available to help. Here’s how to decide if you need tax help, the types of professionals available, and how to choose the right one for your needs.
Deciding to Hire Tax Help
You might be able to prepare your own income tax return, especially if your financial situation hasn’t changed much from year to year. However, significant life events—such as buying a home or starting a business—can complicate your taxes. Here are some tips for deciding whether to seek professional help:
- Significant Changes: If you’ve had major financial changes, it may be wise to seek help.
- Time and Organization: Even if you hire a preparer, you’ll still need to organize your documents. Confront tax preparation early to avoid last-minute stress.
- Regular Updates: If annual compilation of tax records is overwhelming, try organizing them monthly or quarterly.
Types of Tax Professionals
Different tax professionals offer varying levels of expertise and services. Here are the main types:
Unenrolled Preparers
Unenrolled preparers generally have the least training and work part-time. They tend to be less expensive, making them suitable for straightforward tax situations. However, ensure they are competent, as they may not have more knowledge than you do.
Enrolled Agents (EAs)
EAs are licensed by the IRS and can represent you in case of an audit. They undergo rigorous training and continuing education. EAs are ideal for tax return preparation, tax planning, and audit representation. They usually charge more than unenrolled preparers but less than CPAs.
Certified Public Accountants (CPAs)
CPAs undergo extensive training and must complete continuing education to maintain their certification. They are best for complex tax situations, such as business incorporations or significant financial events. CPAs can also offer additional services like bookkeeping and financial consulting. However, they tend to be more expensive.
Tax Attorneys
Tax attorneys are highly specialized and expensive, usually charging $300 to $400 or more per hour. They are best suited for dealing with legal disputes, complex tax issues, or business transactions.
Finding and Choosing a Tax Advisor
When seeking a tax advisor, consider the following steps to find a competent professional who fits your needs:
Recommendations
- Friends and Family: Ask for referrals from people you trust.
- Coworkers: Especially helpful if you’re self-employed.
- Other Advisors: Financial or legal advisors might provide referrals, but be aware of potential conflicts of interest.
Professional Associations
Contact professional associations for referrals to enrolled agents and CPAs. This ensures the advisors are licensed and in good standing.
Interviews
Interview at least two or three candidates before making a decision. Ask the following questions to evaluate their suitability:
- What tax services do you offer? Ensure they offer the services you need, such as tax planning or financial reporting.
- What are your particular areas of expertise? Find out if they have experience with situations similar to yours.
- What other services do you offer? Check if they provide additional services like bookkeeping or financial planning.
- Who will prepare my return? Confirm if the person you’re talking to will handle your return or if it will be delegated.
- How aggressive or conservative are you regarding interpreting tax laws? Determine their approach to ensure it aligns with your risk tolerance.
- What’s your experience with audits? Ask about their audit history and how they handle audits.
- How does your fee structure work? Understand their fees and what services are included.
- What qualifies you to be a tax advisor? Inquire about their credentials, experience, and continuing education.
- Do you carry liability insurance? Ensure they have errors and omissions insurance to cover any mistakes.
- Can you provide references of clients similar to me? Speak to other clients to gauge their satisfaction with the advisor’s services.
Conclusion
Deciding whether to hire a tax advisor depends on the complexity of your tax situation and your comfort level with tax preparation. By understanding the different types of tax professionals and carefully selecting one that fits your needs, you can ensure accurate and efficient tax filing, potentially saving money and avoiding headaches.
