Ask anyone what their least favorite day of the year is, and many will say April 15. That is the dreaded day when personal income tax filings are due. Yet, year after year, we somehow make it through to May and beyond. For many seniors, having gone through the ritual for decades, the process is mixed. For those with few assets and resources, the question is how cheaply and how easily they can get their taxes filed. And for those more fortunate, the question is how well their hand-picked professional tax preparer can preserve and protect their fortune from Uncle Sam’s grasp.
The selection of a tax preparer is almost as complex as the tax code itself. The trick is to find the most qualified preparer who can do a good job at the least possible cost.
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Seniors are very familiar with Benjamin Franklin’s quote that “Nothing is certain except death and taxes.” Seniors have prepared and submitted taxes for many decades and are set in their patterns: either they prepare their own, or they pay someone to prepare them.
However, unless seniors are living on Social Security alone and have no complicating factors, filing taxes has become so complicated that many are hiring professional tax preparers. (In 2016, tax professionals helped 69 million individuals file returns. Sixty million used software, sixteen million used storefront offices and 5 million did them manually.)
The movement to ‘free’ tax preparation by many tax preparation services – facilitated by the sophistication of tax preparation software – has made it more appealing to hire out the task, even if all too often add-on services make the service not so free. A senior’s most significant challenge is which tax preparer to select since they do not all have the same credentials. Only a few states regulate tax preparers, so the responsibility for choosing well remains with the individual taxpayer.
Depending on the complexity of their tax returns, seniors can select from tax preparation chains (many of which are franchises), enrolled agents (EAs) who are licensed by the federal government and are often former IRS employees, certified public accountants (CPAs) or tax attorneys. The IRS also has a voluntary program that issues an Annual Filing Season Program Record of Completion to individuals who complete a certain number of continuing education hours but who do not necessarily have other credentials.
Even with all the do-it-yourself software available today, the thought of preparing one’s own tax return can feel overwhelming. Life changes can trigger a ‘tax event’ that raises the complexity of filing and makes the option of hiring a professional preparer almost mandatory. Such life changes can include losing a spouse, inheriting an income-producing property, selling one’s home and so many others.
Failing to file tax returns for years, owing back taxes or having received correspondence from the IRS are other reasons to hire a professional.
Finding the right tax preparation service for your tax needs means:
- having the peace of mind of knowing that the IRS will probably not be contacting you;
- benefiting from the knowledge of changes in the tax code, which keeps you from paying anything more than is required;
- not having to pay penalties because you paid less than required; and
- having someone familiar with your return to assist you (assuming your tax preparer is licensed to do so) should the IRS decide to audit your return.
Selecting a tax preparation service is like anything else: you want to pay the least amount necessary for your situation, and you want it all to be ‘easy.’ You want to know if the service is guaranteed, if it is easy to use, if you can cancel easily and if you have easy access to the tax preparer’s customer support team.
Also, you want to know if the service will handle all state and federal requirements, if it offers any discounts, how you will receive your refund and, if the software is used, how secure it is.
No matter who prepares a tax return, the taxpayer is responsible for all the information on that income tax return. As a result, tax preparation services or professionals must be selected with great care.
Vetting the tax preparer: Because only a handful of states regulate tax preparers and as there is no federal oversight in place, checking the preparer’s qualifications is critical. Once you determine which credentials you prefer your preparer to have, you can check the ‘IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.’ There you will find information on attorneys, certified public accountants, enrolled agents and others who can represent you before the IRS in any situation.
You will also want to check on the preparer’s history, including with the Better Business Bureau. The appropriate authorities (such as the National Society of Accountants and the National Association of Tax Professionals) can be consulted for the different types of credentials held, in case there are any disciplinary actions reported.
If you are working with a tax preparation chain instead of an individual, confirm that the business and that specific branch has not had complaints, that the quality of the work is guaranteed and that they can help you after filing season if the IRS comes back with questions or concerns. Major chains provide employee-preparers at each franchise office with different amounts of tax courses, continuing education, skills training, practice sessions and pre-season training.
Work methodology: Ask the tax preparer how he or she works. A conscientious preparer will want to see your records and receipts and will interview you regarding different forms of income, deductions, credits, past returns and so forth. Also, ask how your return will be filed. Preparers who are paid to calculate and file returns for more than ten clients are generally required to file electronically (e-File). If your preparer does not offer e-File as an option, you might question whether this is someone who has a sufficiently large practice to have current experience.
Ask whether a tax preparer will be available after April 15 (when tax filings are due) so you know the person can be reached in case there is any follow-up from the IRS. This will also ensure that the preparer is not just a seasonal worker.
The fees charged by a tax preparation service should be transparent and ideally disclosed before the work is done. You will want to avoid anyone who bases fees on a percentage of your refund, as this will distort the preparer’s motivation.
Completed returns: Be sure your tax preparer expects you to be present once the return is completed. Do not work with someone who asks you to sign a blank tax form or who does not give you the opportunity to review the return before you sign. Question anything that is unclear and check that the refund, if any, lists your bank’s routing and account numbers. Have the preparer sign your return in front of you and include his or her PTIN (Preparer Tax Identification Number). Both a signature and a PTIN number are required by law.
Two areas differentiate what seniors prioritize from what others do when selecting tax preparation services: age-friendliness and health-related value.
Age friendliness relates to how easy a company is to work with, whether you work with the company’s website or in face-to-face interaction. As you age, and the complexities of tax matters become harder to follow, friendly service will have people with the skill and patience to make the task pleasant and non-contentious.
The health-related value of a tax preparation service comes into play as it offers workable alternatives to seniors who, for health reasons, need extra assistance completing the tax preparation process. This might include video chat and other online technologies that mean the senior can participate without having to leave home.
The fees for tax preparation services vary by geography, by the education of the tax preparer and by the complexity of the return. The extreme competitiveness between tax preparation chains to capture market share in recent years has resulted in ‘the battle to zero’ pricing for straightforward tax returns. However, the zero-cost service often gets upgraded once the customer is in the door because of the clever marketing of add-ons like access to last year’s return or access to someone to answer questions over the phone.
The costs associated with professionals preparing your tax returns depend on the amount of help needed. These costs are easily justified by the tax credits and deductions such skilled professionals are aware of, and that can benefit you by lowering your tax bill. The cost of preparation itself may even be deductible.
The Internal Revenue Service’s website has published information resulting from a survey conducted by the National Society of Accountants (NSA). It states the average cost of professional tax preparation to be $261 for a 1040 Tax Form with itemized deductions, and one state tax return. The average without itemization is around $152.
Following is a listing of the average costs the NSA survey found for preparing specific tax forms:
- 1040 (Schedule C) Tax Form: $218
- 1120 Tax Form (C Corporation): $806
- 1120S Tax Form (S Corporation): $761
- 1065 Tax Form (Partnership): $590
- 1041 Tax Form (Fiduciary): $497
- 990 Tax Form (Tax-exempt Organization): $667
- 940 Tax Form (Federal Unemployment): $63
- Schedule D (Capital Gains and Losses): $142
- Schedule E (Supplemental Income and Loss): $165
- Schedule F (Farming): $196
The initial evaluation criteria for selecting tax preparation services include:
Cost: The amount paid for tax preparation services varies with the complexity of the return, but an estimate should be available upfront unless you have failed to describe your needs correctly.
Warranty: You want to know that whoever is preparing your tax return is going to take personal responsibility for the work done, even if you remain ultimately responsible in the eyes of the IRS. Individual professionals should be willing to re-do any work that has resulted in discrepancies and tax preparation chains should be willing to warrant the calculation part of their work.
Ease: No one looks forward to tax preparation, so the easier the process is made by the person or service preparing your returns, the better. Technology has an important role to play in facilitating the process, starting with effective software.
Cancellation: Tax preparation is a single event, not a long-term relationship. Therefore, there is nothing to be canceled.
Customer support: The degree of customer support depends on the nature of the tax preparation service you are receiving. If dealing with an individual, you would expect quick and easy telephone and email access during regular business hours. With a strictly online service, you would expect extensive FAQ information on the website, easy prompts and explanations for any part you are doing on your own, and phone, chat and email support to answer questions. With brick-and-mortar businesses, online and telephone access during regular business hours would be the minimum.
In the absence of oversight and regulation in much of the country when it comes to tax preparation, the Consumer Federation of America (CFA) contracted to have polls done across the nation. The surveys showed that half of the public uses paid tax preparers from time to time. Nearly a third uses them frequently.
Nearly 70 percent of the respondents to that survey believe that licensing is required for paid preparers by either state and/or federal agencies, although that is only the case in four states. Close to 90 percent feel paid tax preparers should pass a government-administered test to ensure correct completion of tax returns, with licensing requirements by a state agency that would resolve complaints and enforce taxpayer protections.
Separately, a small study conducted by the Government Accountability Office found significant errors in returns. Nineteen preparers were selected randomly and only two calculated the correct refund amount. While the study was tiny in scope, it remains a glaring ‘red flag.’
The best bet for seniors seeking tax preparation services is to find and vet a qualified preparer and develop a relationship with that person, be it an individual professional or individual within a company. Nurture that relationship so that, year after year, a level of confidence exists that the preparer will be familiar with the quirks of the senior’s tax issues and will prepare correct returns.