Do I need to hire a tax professional? What should I ask when looking for one? And is it really even worth it?
With tax season upon us, there’s a good chance you’re asking yourself these questions, which is why we spoke with J.R. Gramstad, a tax professional and owner of JRG Taxes, to get his thoughts on who needs to hire a tax pro, all of the questions to ask potential candidates, what to watch out for, and more.
Read on for his tips and how hiring a professional can save you hundreds, if not thousands, of dollars.
Who Needs to Hire a Tax Professional
Most people need to hire a tax professional when something has changed in their life. “Maybe they had a child, moved homes, changed jobs or inherited money; there’s usually a life event or change that throws them a curve ball” says Gramstad.
In addition, he says anyone who is self-employed in any kind of way should absolutely use a professional. “The tax code is infinitely more complicated for people who are self-employed versus a job with a W2.”
Questions to Ask When Interviewing Potential Candidates
How long have you been in business?
The first thing you want to ask, Gramstad says, is how long they’ve been doing taxes. “Someone who hasn’t been in business very long may be inexperienced or trying to prey on people. You really want someone who has been preparing tax returns for at least three or four years, either in a bigger firm or by themselves. It takes about that long to get a good grasp on how to prepare returns, learn what’s deductible, etc.”
Who will be handling my return?
“Ask who will be preparing the return,” Gramstad says. “You want to know if it will be the person you’re having the consultation with or if they’re going to hand it of to someone else. You want to have as much information as possible, so you can feel comfortable handing your personal information over to someone.”
How much will you charge?
Gramstad says to be aware that there are rules and regulations surround how much a tax preparer can charge. “If someone tells you they’re going to charge you a percentage of your refund, that’s a red flag.” He adds that some states also have uniform fees that tax preparers have to charge, so you should check on that based on where you live.
No matter what though, most tax preparers should be able to give you a ballpark estimate of how much they’re going to charge based on the complexity. “If someone has a straight forward tax situation, the fee shouldn’t be that much,” he says. “But if it’s a unique situation with a lot of moving parts, people should expect to pay more.”
Do you have specialize in certain kinds of returns?
“Someone who is self-employed will definitely need to find a more experienced tax preparer because there are so many more deductions,” Gramstad says. He adds that taxes will also be more complicated for someone who has rental properties or owns a small business. In those cases, it’s important to find a tax preparer who has experience with those specific areas.
“I’ve saved clients thousands of dollars just by using the business tax code versus the personal tax code,” he adds. “If you have a unique tax situation, ask the tax preparer some specific questions to gauge if they know what they’re doing and if they’re going to be the best person to handle your taxes.”
What professional credentials do you have?
“The number one thing to find out is if they’re registered with the IRS,” Gramstad says. “They need that at the very least. I would also ask about their education.” Answers to look for would be if they have their Masters in Accountancy and Taxation, are an enrolled agent, which means they are a federally-authorized tax practitioner and have unlimited rights to represent taxpayers before the IRS, or are a Certified Public Accountant, which means they have passed a difficult exam and are licensed by the state.
Are you a full-time tax preparer?
Gramstad says it’s important to make sure your tax preparer is open year-round. “You don’t want someone who only has an office open for a couple of months and then vanishes,” he warns. “You want someone who does taxes full time, so you’re able to ask them questions throughout the year or in case of an audit.”
How would you handle an audit, if one were to happen?
“Definitely talk to the tax preparer about how often they handle audits, how successful they, and what their policies are for helping in case an audit occurs,” Gramstad says.
While face-to-face audits are mostly a thing of the past and most IRS audits now come via a letter in the mail, he adds, whoever prepared your taxes should be able to help you answer the questions the IRS is asking and resolve everything in the right way.
If the audit is a result of something the client omitted, there might be a charge for that, but that most tax preparers should be willing to stand by their work and correct any mistakes they made free of charge.
Things to Watch
There are a few things to watch out for, Gramstad says.
- Someone trying to sell you an advance refund product. That’s generally just a high interest loan with rates that can be incredibly high.
- A tax preparer who says they are going to charge you a very high fee, but that they’ll get you so much more money on your refund, that it will cover it. “Typically they’re going to make up false deductions. The IRS will probably give you the refund, but you just filed a fraudulent tax return and are more likely to be audited.”
- Someone who isn’t communicating with you in a timely basis. “You want someone who is going to be forthcoming and communicate with you about issues.”
- Anyone who doesn’t have a tax preparer number.
The Benefits of Hiring a Professional
“There are times when if you do your taxes yourself, you’re going to get the same result as a tax professional,” Gramstad says. “That’s usually someone with one W2 who doesn’t have kids, doesn’t own a home, or is just starting out in their career.”
But once those life events start happening, it takes the average person around 13 hours to prepare their tax return. “When you use a professional, you’re saving time and you’re probably saving money by getting the best refund.” He also points out that the tax code is constantly changing, especially with a new administration coming in, which isn’t something most people have the time (or desire) to keep up with.
“Why not get the best advice all of the time, get the most money back in your pocket, make sure you’re not overpaying the government?” Gramstad says. There are plenty of times I’ve seen people do taxes themselves and they leave money on the table. Sometimes it’s hundreds of dollars, sometimes it’s thousand of dollars… I’ve even seen tens of thousands of dollars. So if you think it may just be a little too complicated and you aren’t sure what’s going on, you should consider hiring a professional. They can make sure everything is done right.”