Introduction to Choosing a Tax Return Preparer
Tax return software, although extremely popular, is often only as smart as its user. I have amended numerous returns for individuals who have made serious errors using tax software. These have ranged from a family member missing out on a $2,000 refund due to sales tax deductions they did not report to a client who missed out on over $200,000 due to failing to properly account for net operating losses. It is important not to be pennywise and pound foolish. For anyone with more than a single W-2, who itemizes their deductions, has a Schedule C business, makes stock trades, or has had other complexities in the life that they may believe impacts their tax returns, please, please, please make the investment in order to have a professional tax return preparer prepare your taxes.
With respect to tax return preparers, I also know that not every tax return preparer is created equal. Although I believe myself to be an excellent preparer and know several attorneys that are as well, I would generally recommend having a CPA or someone with a familiarity with tax reporting who specializes in individual income tax return preparation handle your return. In general, CPAs generally specialize in the more technical aspects of tax return preparation, are more familiar with how to prepare certain schedules and attachments to the return, and, in my experience, have the lowest rates of errors among tax return preparers. That is not to say that by using a CPA that your return will be mistake free (an extra zero can turn a minor deduction into a significant one), but you can feel fairly confident that your return was done correctly in the hands of a competent CPA.
Also, just because someone is an accountant, does not mean they are qualified to prepare individual tax returns. I know high ranking, Big Four accounting firm partners who do not know the first thing about tax. I would lump people in the “non-qualified” category if they are CPAs that spend the bulk of their time working with corporate tax returns, rather than individual returns. The knowledge base and skill set associated with corporate income tax return preparation is much different than what is needed to prepare individual tax returns. In other words, not all tax return preparers are created equal.
Therefore, it is necessary to have a good understanding of the background of the person preparing your return. You want someone who specializes in individual income tax preparation and who is familiar with what you are asking them to do if your return contains technical issues. Most CPA firms will have someone who specializes in tax preparation, but you can also seek a referral from the state CPA society or from a local tax attorney. They should be able to point you in the right direction.
Where it becomes beneficial to have a tax attorney prepare your return is when there is a special circumstance that merits additional consideration. If, for example, you feel that you are at a high risk of audit for a year in question. Other circumstances would include if you have done a technical transaction during the course of the year, have foreign income or a foreign bank account, need a tax advisory opinion regarding a position you plan to take on the return, or need someone with some background in tax law to help prepare the schedules on the return. If in doubt, ask your tax attorney what he/she recommends. For most clients, although I tell them that I am happy to prepare their return, I generally recommend that they might want to consider a cheaper alternative as my tax preparation rates are not the best in town. However, it is sometimes is beneficial to spend a little more in order to increase your level of confidence. If you do have a tax attorney prepare your return, you should make sure that they have a robust return preparation practice, so that you can be comfortable that their skills are sufficiently kept up to date. A general rule of thumb is that the sophistication of your tax return preparer should match the complexity of the return (which is why software is not appropriate for most returns).