Thursday, January 21, 2010


So you know not to assume that just because a person has the initials CPA after his/her name that he/she knows anything about preparing 1040s, and that Henry and Richard or other fast food commercial chains charge a low or even reasonable fee.

Here are some other mistakes to avoid when choosing a tax preparer –

* Do not use a tax preparer who guarantees you a bigger refund, or who guarantees a refund period. No tax preparer anywhere can guarantee you a refund if your individual facts and circumstances – your actual numbers – do not warrant a refund unless he/she makes up deductions or exemptions or purposely does not report all your income. Either way that is tax fraud! The only claim or guarantee any legitimate tax preparer can make is that by using his/her services you will pay the absolute least amount of federal and state income taxes possible for your individual situation.

* Do not choose a preparer who charges as his/her fee a percentage of your refund or of the amount of tax he/she has saved you. Chances are the person will illegally inflate your refund or savings to increase his/her fee. The fee for preparing a tax return should be based solely on the amount of time involved and/or the number of forms and schedules required.

* Do not choose a tax preparer solely for the reason that he/she tells you that you can walk out of the office with a check in your hand. That person or firm is not selling competent and accurate tax preparation – they are selling usurious Refund Anticipation Loans, which you should avoid like the plague. You want to use a tax preparer that is experienced and knowledgeable in tax law and not a loan shark.

* Do not choose a tax preparer who will not sign your finished returns. All tax preparers are required by the IRS to sign all tax returns which they have been paid to prepare. If a person prepares your return and refuses to sign it you should refuse to pay him/her and take your “stuff” elsewhere.

* Perhaps the biggest mistake, do not choose a “box” as your tax preparer. I cannot stress this strongly enough – no tax preparation software is a substitute for knowledge of the Tax Code. And no tax preparation software is a substitute for the services of a trained tax professional! As with any software program the rule is “garbage in – garbage out”.

When the IRS comes after you for errors on your tax return you can’t blame it on the software, unless you have been nominated for a top level position in the federal administration. The US Tax Court has on two separate occasions rejected the “Turbo-Tax Defense”.

The IRS estimates that do-it-yourself software users spend an average of 10 to over 20 hours longer on a return than if they used a paid tax preparer, depending on complexity of the return.

The bottom line is – if you don’t know what you are doing do not rely on a tax preparation software package to make up for your lack of tax knowledge. Using a real live tax professional will save you time, aggravation and money.

* And one final item before I end. As I say in the cover letter that accompanies all of my finished returns -

Please examine these returns carefully to be sure all items of income and deductions have been accounted for properly. You are responsible for all the information reported on the returns. If you find anything that is not in order, or that you do not understand, contact {your tax preparer} immediately. It is extremely important that you verify the accuracy of all Social Security numbers on the returns before mailing.”