In order for a tax professional to prepare a federal tax return, he or she must possess an IRS Preparer Tax Identification Number (PTIN). However, a PTIN doesn’t mean someone is the right person for the job.
It is important to take into account a tax preparer’s credentials, level of education and experience before making a decision about whether to hire this person. It also is important to consider the complexity of the return to be filed.
Many people will choose to do their tax preparation themselves. This can be a good option for simple returns and for those who have kept good tax records. Today’s tax software makes this an affordable option that works well. This is not an option for everyone, however. Taxpayers who have a complex return, have not kept adequate records or own a business would do well to hire a tax professional. Further, many people simply do not have the time it takes to prepare their own taxes.
There are three basic types of tax professionals. In order to select the best one, it is necessary to know a little bit about each type.
1. Tax Preparer. This type of tax professional prepares tax returns but performs no other tax-related work. Tax preparers often work for large national chains or they can work on their own. If a return is simple, this is a safe, affordable choice. However, complex returns or business owners would be better off working with a more specialized tax professional or firm.
2. Enrolled Agents. Enrolled agents are tax advisors and preparers. These individuals are licensed by the Internal Revenue Service and have either five years of experience or have passed a rigorous test administered by the IRS. Enrolled agents also are able to represent taxpayers before the IRS and in administrative proceedings. Enrolled agents are relatively affordable and an appropriate choice for many individuals.
3. Certified Public Accountants (CPAs). Certified public accountants (CPAs) are licensed and regulated by each state. They undergo lengthy training and must pass a comprehensive tax exam. CPAs not only prepare tax returns, they are experts in all areas of accounting and tax. CPAs work at large national firms or in local offices or even on their own. Because of their knowledge and expertise, CPAs are the most expensive tax preparers and are used by large businesses and those who have several assets or complicated financial situations
While it can be tempting to go the cheapest route when it comes to choosing a tax preparer, this is a case of getting what you pay for. Choosing the correct tax professional ensures that a tax payer gets the deductions he or she is entitled to and never pays more than is necessary to the IRS.