Hiring a Tax Pro: What to Know

Earlier this week I gave some advice on when hiring a tax pro is a good idea. If you are planning to work with a professional tax preparer, here are a few tips on how to go about it.

The first thing you need to do is to get your tax information organized. Gather the information and records you'll need, such as:

• Last year's income tax returns
• Checkbook register, checking account and credit card statements
• Canceled checks
• Pay-stubs and W-2's
• 1099s, brokerage and investment account statements
• Year-end mortgage statements
• Property tax receipts
• Receipts for expenses that may be deductible
• Financial and investment property records

Finding a Tax Preparer
Tax preparation professionals can offer a variety of services in addition to completing your return. They can be more familiar with the tax saving strategies unique to your situation or profession. They can help you organize and plan for next year's taxes by suggesting what records to keep and what financial moves to make this year that can lower your 2011 tax liability. They can also help you determine if you are required to pay estimated taxes each quarter and calculate what to pay and file each quarter. The bottom line is to make sure the preparer you chose to work with offers the services you need.

The IRS does not yet require tax preparers to have a license or certification to prepare someones tax return for pay, but this is about to change. Only a few states require a formal license to provide this service to the public.

It's recommended to seek a tax pro who is an Enrolled Agent, Certified Public Accountant or a Tax Attorney. These preparers have completed extensive examinations on tax matters, must stay current by meeting continuing professional education requirements and are qualified to represent your tax return if it is audited. There are several associations and affiliations, that encourage tax practitioners to obtain designations and adhere to professional standards of practice.

Asking family, friends and co-workers about whom they use is the most common advice given for seeking out a tax preparer. Also search for a tax preparer near you through trade organizations such as The National Association of Tax Professionals . Ask for references and check them. You should interview a tax preparer before you hire him or her.

How to Pay
The cost of your return will vary depending on the complexity and completeness of your information. Being well organized and having excellent records is a common reason for discounting fees by tax preparers.

Preparers charge in a variety of ways. Some use a set fee for each form and schedule, others use a fee based on the prior years cost adjusted for changes in the clients situation and others use a formula of billable hours based on the IRS guidelines for time estimated to complete certain forms. Others charge a flat fee per return and still others charge for actual time spent to prepare your return and provide other services. The best way to proceed is to present all of your information and get a firm estimate before you agree to go forward, especially if this is the first time you are working with this person.

A fee arrangement to avoid is where a tax preparer bases their fee on a percentage of your refund. Also, when the tax preparer is employed by a chain that bases their pay on the number of returns they prepare, this should raise a concern about the incentive to produce a high volume of returns which could compromise the quality of their work.

Tax Preparer Responsibilities

There are no studies that suggest that tax professionals get bigger refunds for their clients. Having a tax professional prepare your taxes is no guaranty that you'll file an error-free return. In fact, the Government Accountability Office reviewed tax returns prepared at 19 tax preparation stores and found mistakes in all of them.

But there are strong incentives for tax preparers to accurately complete your returns. An income tax preparer can be subject to civil penalties and barred from practice for knowingly preparing returns or claims for refunds which understate your tax liability or overstate the refund based on unrealistic information. While preparers are not required to review all of your tax documents or statements to independently verify your information, they must make reasonable inquiries if what you gave them appears to be incorrect or incomplete relative to the deductions you intend to claim.

Finally, having a "Preparers Signature" at the bottom of your return doesn't mean it has more credence with the IRS. But it should give you comfort to know that a signing preparer generally is viewed under the regulations governing tax preparers to have overall authority over the accuracy of the clients tax return and as a result could be subject to penalties for taking unreasonable positions on deductions, etc.

Ray Martin

View all articles by Ray Martin on CBS MoneyWatch»
Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.

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