The Truth about Tax Preparers and Tax Software
It is a question plaguing more and more taxpayers each year, “Should I hire a professional or do it myself?”
Tax preparer advocates say a professional can dig for deductions a software program will never find. While tax software advocates argue the programs are quite sophisticated and will save you a lot of money in tax preparation fees.
Whether you choose to do it yourself or hire a professional, it is important not to make any impulsive decisions.
Tax Preparer 101
Hiring the right tax preparer should be based on making sure his or her expertise matches your needs and financial situation. In other words, choosing the first tax preparer you see in the yellow pages or internet search is not the best way to go.
Except for California, Maryland and Oregon, there is no oversight for tax preparers who are not an attorney, certified public accountant (CPA) or enrolled agent (EA). In other words, the education and ethical standards these tax preparers go by are set at their own discretion.
In California, anyone who is charging a fee to prepare tax returns and is not an attorney, CPA or EA, is required by law to register with the California Tax Education Council (CTEC). All CTEC Registered Tax Preparers (CRTPs) must complete tax education courses each year and keep a current bond before they can prepare tax returns professionally.
In Oregon, all tax preparers must be licensed through the Oregon State Board of Tax Practitioners. Each tax preparer is required to pass a competency test.
Maryland also recently passed legislation in 2008 to require its tax preparers complete education requirements and pass an exam before they can prepare tax returns professionally.
As for those of you in other states, choose your tax preparer cautiously. You should hire a tax preparer that can provide proof of errors and omissions insurance and continuing education certificates; and unless the tax preparer is an attorney, CPA or EA, do not be afraid to question tax preparers who claim to be a “certified” or “licensed.” If there is no state oversight, how are they certified or licensed?
What’s in the Box?
Many people are ditching the paper and pencil route and seeking tax software programs for help. After all, it promotes three features most consumers want:Speed, ease and affordable prices. The average program can cost $100 or less.
Fans say it is fool proof and is as good as a tax preparer since both rely on the accuracy of information you provide. An up-to-date program will have the latest tax law information in its database. Plus, if you need tax advice or help, a live support team is usually available.
So why not use it? It depends on you, literally. A qualified user must be honest and thoroughly accurate in data entry. Not all innocent mistakes, such as wrong answers to misunderstood questions or transposed numbers can be caught.
These programs are also considered “self prepared,” which means you, and only you, sign the tax return. If the IRS catches a mistake, you, not live support, are responsible for it.
Bottom Line
Do your research. Get referrals. Stick to your comfort level.
Whether you hire a professional or purchase a software program, remember that you are the one ultimately held accountable for the information on your tax return. Choose wisely.
For more information visit www.ctec.org or call (877) 850-CTEC.
CTEC is a nonprofit organization that was established in 1997 by the California State Legislature to protect the public by registering tax preparers within the state.
Need a Tax Preparer?
Every tax season someone will write a story about how to choose a tax preparer, the latest scams to watch out for, new tax laws, identity theft issues and on and on it goes until you hit panic mode. So much research, so much time and what if you owe money?
Each year the California Tax Education Council (CTEC) receives phone calls from taxpayers desperately looking for information about their tax preparer they should have learned day one. A surprising number of callers do not even know the tax preparer’s name.
Why do so many of us go into tax season with such immense trepidation until it comes to hiring a professional tax preparer?
Before you Google, flip through the yellow pages or walk into the nearest tax preparation office, know this: If you live in California or Oregon, make sure your tax preparer is legal.
In California, paid tax preparers who are not an attorney, certified public accountant (CPA) or enrolled agent (EA), are required by law to register with CTEC. All CTEC Registered Tax Preparers (CRTPs) must complete tax education courses each year and keep a current bond before they can prepare tax returns for a fee.
If you live in Oregon, all paid tax preparers must be licensed through the Oregon State Board of Tax Practitioners.
Maryland recently passed legislation in 2008 to also require that its paid tax preparers complete education requirements and pass an exam before they can prepare tax returns.
As for the rest of you, choose your tax preparer cautiously. There is no oversight for tax preparers in other states who are not an attorney, CPA or EA. In other words, the training, education and ethical standards these tax preparers go by are set at their own discretion.
Hiring the wrong tax preparer could result in penalties, missed deductions and no protection against mistakes or fraud.
Below are the top ten questions to ask a tax preparer (They should answer “yes” to all ten questions):
1. Will you sign my tax return?
2. Do you have a written privacy policy? Can I get a copy of it?
3. Do you have proof of a tax preparer bond (Required for all CRTPs) and/or errors and omissions insurance (Optional for all tax preparers)? If not, what protections will you offer me and can I get it in writing?
4. If a situation should arise with the IRS, will you stand by your work?
5. Do you take continuing education courses on tax laws? Can you provide proof?
6. Can you provide me with a list of references I can contact about your work?
7. Will you be available after April 15th?
8. Have you ever prepared a tax return dealing with my situation?
9. Will you provide me with a copy of my completed tax return?
10. Will you go over the finished tax return with me?
CTEC was established in 1997 by the California State Legislature to protect the public by registering tax preparers within the state. For more information visit www.ctec.org or call (877) 850-CTEC.
CTEC is a nonprofit organization that is mandated by the State of California. CTEC’s mission is to protect the public by ensuring paid tax preparers (excluding attorneys, CPAs and enrolled agents) are registered, educated and bonded.
Tax Preparers’ Repsonsibilities to You
It is an inescapable reality all of us will eventually face aside from death. Taxes. There is no denying it is a daunting task and ultimately more than half of us will surrender our calculators and hire a professional tax preparer.
It sounds like an easy out, but what many taxpayers fail to realize is not all tax preparers are created equal.
Professional Credentials
Although Congress is considering a national licensing requirement for all professional tax preparers, California, Maryland and Oregon are currently the only three states that have set requirements for its paid tax preparers.
In California, anyone who is charging a fee to prepare tax returns and is not an attorney, certified public accountant (CPA) or enrolled agent (EA), is required by law to register with the California Tax Education Council (CTEC). All CTEC Registered Tax Preparers (CRTPs) must complete tax education courses each year and keep a current bond before they can prepare tax returns for a fee.
In Oregon, all tax preparers must be licensed through the Oregon State Board of Tax Practitioners. Each is required to pass a competency test.
Maryland recently passed legislation in 2008 to also require that its tax preparers complete continuing education requirements and pass an exam before they can prepare tax returns professionally.
As for the rest of you, choose your tax preparer cautiously. There is no oversight for tax preparers in other states who are not an attorney, CPA or EA. In other words, the training, education and ethical standards these tax preparers go by are set at their own discretion. If you hire a tax preparer who is not an attorney, CPA or EA, make sure he or she is insured and up-to-date on tax laws.
Insurance and Bonds
There are two types of policies for tax preparers, errors and omissions (E&O) insurance and a $5,000 tax preparer surety bond.
CRTPs are the only tax preparers required by law to purchase a surety bond to help protect clients against fraud. If a CRTP violates any of the rules and regulations under the California Tax Preparer’s Act, the victim can file a claim.
E&O insurance is highly recommended in the tax industry, but it is not requirement for tax preparers. E&O insurance protects the tax preparer against mistakes made on the tax return that could lead to a lawsuit. If there is an error, E&O insurance will cover the penalty or interest for the client.
Privacy Policy
In an effort to combat the identity theft scare, all tax preparers are required to have a written privacy policy and provide clients with a copy of it. This means tax preparers, no matter what state you live in, cannot share your private information unless you give them permission.
The policy should list what protections the company has in place to guarantee your privacy. It should also include what is considered “private information” and who will have access to it.
Remember that lawful tax preparers are only interested in your income and expenses. If a tax preparer asks questions that do not relate to income and expenses, you should beware.
CTEC is a nonprofit organization established in 1997 by the California State Legislature to protect the public by registering tax preparers within the state. For more information, call 877-850-CTEC or visit www.ctec.org.
