In a recent post for InvestorPlace.com, I looked at some of the factors for using the services of a tax professional versus software, say Intuit’s (NASDAQ:INTU) TurboTax. But this raises a question: How do you find the right tax professional this season.
Unfortunately, it’s not easy. First of all, there are more than 750,000 tax preparers in the US! Oh, and there’s something else to keep in mind: There is no national certification.
In other words, most people can get into the industry so long as he or she gets a PTIN (Professional Tax Identification Number), which is easy to obtain. Only a few states – such as California, Oregon and Maryland – have certification requirements.
So what to do? Well, there are definitely steps you can take, such as the following:
Tax Pros: Big Chains v. Indie Firms
Big chains like H&R Block (NYSE:HRB) may have higher prices but they still have important advantages, such as more services and digital systems. These firms also have extensive training programs, with veteran experts in specialized tax areas.
Now this does not mean that you should avoid indie firms. No doubt, they have many top-notch tax professionals. Yet you’ll still need to do a background check to make sure you get the right tax professional. Part of this should include a Google search.
Then look to see if the tax pro has at least one credential, such as a CPA (Certified Public Accountant) or EA (Enrolled Agent) designation. The IRS also has its own offering, called the Annual Filing Season program. Although, a key benefit of a CPA or EA is that the person can provide full representation if you get audited.
Tax Pros: Security
Your tax return is a gold mine for hackers and identity thieves. In fact, over the years, there has been many cases of fraud.
In light of this, you should ask a tax pro about his or her security policies. What measures are taken to protect your private information? Does the firm use security software?
If the answers are not convincing, then you might want to look for someone else for the right tax professional.
Tax Pros: Specialization
Even if a tax pro has a certification, this may not be enough. Note that it is mostly a general coverage of tax topics.
Thus, if you want a specialist in a certain area, say for estates or small businesses, then you need to ask more questions. It’s also a good idea to request references.
Tax Pros: Fees
Fees vary widely across the tax preparation industry. Because of this, it’s a good idea to shop around and negotiate.
In some circumstances, a tax pro may offer to take a fee that is based on the percentage of your refund. But this could lead to serious problems. After all, the tax pro may be tempted to exaggerate deductions or minimize income. As a result, the IRS considers performance fees to be a violation of ethics for tax preparers. The same goes for whenever there are any promises or guarantees about refunds.
Another red flag is when e-filing is not offered. This may indicate that the tax preparer does little business.
Tom Taulli is an Enrolled Agent and also operates PathwayTax.com, which is a tax advisory and preparation firm. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.