Does a Tax Preparer Need to Be an Accountant?
Deciding whom to hire to prepare your tax return can be a difficult decision. That’s because there are a variety of choices available to both businesses and individuals. There is no special qualification or licensing required by the Internal Revenue Service. The choices range from a tax preparer, who may have experience but little tax training, to a tax accountant, a person with specialized accounting training that includes a focus on tax laws.
A Tax Preparer Doesn’t Have to Be an Accountant
Certified public accountants generally have the most education and training of the choices available, and they also generally charge the most because of that. But anyone can open up a business and offer to be a tax preparer. The IRS has no regulations governing the tax preparation industry. In addition to an undergraduate degree, usually in business or accounting, a CPA also must pass a state exam to qualify as an accountant. However, that education may not be in the actual area of tax preparation. A tax accountant, on the other hand, is a CPA who has focused on the area of taxes. Often tax accountants work for businesses and handle more complicated tax returns and tax-related issues. It is up to the taxpayer to determine if it’s a make financial sense to hire a tax accountant for their return.
Enrolled Agents Are Tax Preparers Approved by the IRS
Another option for the taxpayer is an enrolled agent. These tax preparers are actually licensed by the IRS and must pass an exam administered by the IRS. Enrolled agents generally do not charge as much as accountants. Another plus for an enrolled agent is the ability to represent a taxpayer in the event of an audit. Only accountants, attorneys and enrolled agents are allowed to show up with a taxpayer at an audit. Many enrolled agents specialize in certain areas of tax law, so it’s important to make sure the enrolled agent has the expertise to handle your tax return.
Tax Preparers with National Chains
Companies such as H&R Block generally offer in-house training to their tax preparers, but the position may not pay much more than minimum wage, and the individual experience of your tax preparer can vary wildly. On the plus side for national chains is a generally lower cost, along with a guarantee in the event of an audit or error in the tax return. Taxpayers with fairly simple tax returns probably would do well in this venue. But as always, it’s vital to check the experience of your individual preparer and to make sure you have the company’s guarantee in writing.
Other Tax Preparers
Anyone can open up an office and offer to prepare tax returns for a living. These situations, along with universities or organizations that offer free or reduced-cost tax preparers, are hit-and-miss. The cost will generally be on the low end of the various tax preparers on this list, but the experience and ability will depend on the individual preparer. Additionally, solo preparers may or may not offer a guarantee for their services. Proceed cautiously, get a guarantee in writing and rely on others who may have previously used the service.
What if the IRS Audits?
One issue to consider is what would happen in the event of an IRS audit. Under IRS regulations, a tax preparer is not allowed to defend a taxpayer in the event of an audit. Representing a client before the IRS or appealing an IRS decision is a right is only extended to tax accountants, enrolled agents and tax attorneys. While the chances of being audited are very small, most taxpayers would want the person who prepared the return to be available to answer any IRS questions.