How to Hire a Tax Pro in the Know

The best $59.99 I ever spent to save my sanity was on a standard two-drawer vertical filing cabinet. Without it, I — like the average taxpayer — would probably spend close to 33 hours preparing my itemized return every year, including 14.6 hours slogging through tax records. Ooof.

Do you need to hire a tax pro?

Avoiding headaches is one reason why around 60% of taxpayers hire a tax pro to help them file. Also consider seeking help if:

• You have a business: Company owners or contractors may need guidance from someone who knows tax laws related to specific jobs or industries.
• You’ve had a major life change:Marriage, divorce, kids, caring for elderly parents — each involves areas of the tax code that may be new to you.
• You’ve had a transaction-heavy year: Buying and selling a home or investments (and how you structure your transactions) will affect how much you owe Uncle Sam.
• Your records are not great and/or you anticipate tax troubles: Finding a tax-code pro who can represent you in an audit can be a lifesaver.

Six flavors of tax professionals

Professional tax services range from straightforward filing to strategic long-term advice. Many preparers have multiple designations (hence the alphabet soup of acronyms on their business cards). It pays to know your pro’s specialty.

1. Chain or local outlet preparers (e.g., H&R Block, Jackson Hewitt) are trained to fill out tax forms, but their experience and expertise can vary widely, and many are not full-time tax pros. This route is best for those with uncomplicated tax issues.
2. An enrolled agent (EA) must pass an IRS exam or have at least five years of work experience at the IRS to be licensed by the federal government. Many have areas of specialty. If needed, the agent can represent taxpayers in IRS disputes. (Unenrolled preparers can represent only those whose returns they prepared.) If you’ve neglected to file a required return (oopsie!), then an enrolled agent is for you. (Go to naea.org to find a credentialed pro.)
3. Certified public accountants (CPAs) are trained in maintaining business and financial records, but they don’t all prepare tax returns. To earn the CPA designation, they must pass a four-part accounting exam. They, like EAs, are qualified to face the IRS on a taxpayer’s behalf. CPAs are best for those seeking a holistic tax strategy to deal with the financial issues from personal businesses, retirement, divorce, etc. (Check out aicpa.org and cpadirectory.com.)
4. Certified financial planners (CFPs) provide overall financial planning advice on savings, investments, insurance, and big-picture tax issues. Fees can be hourly, flat, or based on a percentage of your assets. Some, not all, offer tax prep services to clients. (To find a fee-only financial planner — the only kind we like — check out garrettplanningnetwork.com or napfa.org.)
5. Preparing personal and business returns is the specialty of accredited tax accountants (ATAs) and accredited tax preparers (ATPs), as well as tax planning services. To get the designation, these guys (and gals) have to complete a taxation exam. (To find a pro, click “Consumers” at www.acatcredentials.org.)
6. Tax attorneys tend to specialize in the minutiae of the IRS tax code, particularly in the areas of trusts, estate planning, tax disputes, and business tax law. They must have a JD and must be admitted to the state bar. Some will prepare returns, but usually at a premium cost. They also can represent clients in audit, collection, and appeals before the IRS. (To find a reputable attorney, ask around. Most get business via word of mouth, but ask for other references.)

What you’ll pay

In general, the harder your return is, the more you’ll pay. According to a 2008 survey of nearly 8,000 accountants nationwide by the National Society of Accountants (NSA), professional preparation of a non-itemized Form 1040 costs the average taxpayer about $115. Those who itemize with Schedule A pay about $205. According to IRS research, you can end up paying more than $300 to prepare Form 1040 and Schedules A and D (for capital gains and losses).

Sounds pretty reasonable, right? Well, don’t write a check just yet. Extra services can add up. Accountants charge additional hourly fees of $100 or more for tax services and estate and financial planning advice. Other factors — like the complexity of your return (how many forms and schedules are submitted), the state of your paperwork (are your documents organized or crammed into a shoebox?), and your tax pro’s expertise and experience — can also affect your tax prep tab.

Even your zip code matters: Taxpayers on the West Coast pay $240 for an itemized 1040 compared to an average of $165 for states in the Deep South. And it’s not uncommon for big-city firms to charge base fees in excess of $750.

Credentials cross-check

It’s not all about the money, though. Once you decide what kind of pro you need, do a meet-and-greet. Check to see if your pro has a record of complaints at any of the following organizations:

• The Better Business Bureau (search.bbb.org)
• The state’s board of accountancy for CPAs (click “State Board Listing” at nasba.org and/or natptax.com/state_information.html)
• The IRS’s Office of Professional Responsibility for enrolled agents (send an email to opr@irs.gov)
• Your state’s bar association for tax attorneys (click “Complaints” at abanet.org/public.html)
• If the pro sells securities, check his or her credentials at the Securities and Exchange Commission (sec.gov/investor/brokers.htm), the NASD (click “BrokerCheck” at nasd.com), and/or the state’s securities agency (nasaa.org)