Choosing an income-tax preparer from the seasonal proliferation
For the next few months, a lot of storefront offices will be very busy. Then, like a fly-by-night operation, they'll lock their doors and the people inside will disappear. These are not shady operations. They are income-tax preparation offices, and from now until April 15 thousands of them will be open long hours to help often worried and confused taxpayers prepare their returns.
More than 40 million people will get some kind of professional help on their returns this year. Some will use a small tax-preparation firm with only one or two offices. Many others will go to a major firm like H&R Block, while millions of others will visit accountants or accounting firms.
Making the right choice among these options, or deciding to do your own taxes, can make quite a difference. Your return can be properly filled out and include all legitimate deductions and credits, or it can leave you paying out too much or -- even worse, considering the penalties -- too little to the tax collector.
The easiest way to find out if you can do your own taxes is to give it a try. Read the instructions in the booklet the Internal Revenue Service sends with your form, perhaps get one of the many tax-preparation books now available at bookstores and newsstands, pick up some extra tax forms, and try it. If you haven't done your own taxes before, make this attempt soon, so you'll have time to get professional help if you need to.
If all you have to deal with on the return are wages and interest on the income side and mortgage interest, taxes, and contributions on the deduction side, your return may be simple enough for the do-it-yourself approach. Of course, a lot of this depends on the individual; some people just don't like dealing with numbers, income tax forms, or both. For them, $30 or $40 spent to have someone fill out the forms is well worth it.
Those who are fairly active investors, bought or sold a house last year, have their own business or other self-employment income, or own a farm are probably good candidates for a tax preparer or accountant.
Also, if the return you prepare this year leads to some long-range tax-planning decisions that affect next year's return, you may prefer an accountant who follows tax laws, regulations, and tax court rulings all year. This could be particularly true this year, when tax reform may get through Congress. The alternative minimum tax, for instance, may get tougher, which would require investors to be more careful about adding up too many deductions and investment tax credits.
``H&R Block does a fine job of preparing returns,'' acknowledges Howard Rabinowitz, tax partner with Arthur Young & Co., an accounting firm. ``But they're return preparers, not tax planners.''
While it's hard to define what makes a return and financial situation too ``complicated'' for a tax-return preparer, Mr. Rabinowitz says, he would include people who own rental property, have their own business, inherited all or part of an estate, or have invested in a limited partnership, in addition to those who are fairly active in a variety of investments, including real estate and limited partnerships.
Even here, though, a tax preparer may be adequate. ``If all you're doing is buying and selling stock, and even though you have a lot of investments, H&R Block is fine.'' The various statements you receive in January from your brokers can be put together well enough to prepare a return without an accountant's help.
An employee at a tax-preparation firm, however, may overlook some deductions, says Francis M. Gaffney, national director of tax services at KMG Main Hurdman, another accounting firm. ``Sixty percent of families own their own homes,'' he points out. This gives most of them enough of a deduction that they can start itemizing. Keeping up on the latest deductions can be a full-time job, he contends.
One way to keep up on the latest deductions and tax-law changes is through continuing education. For the National Association of Tax Practitioners, that means being able to show evidence of at least 20 hours of course or seminar work every year, in addition to previous experience or training. The association also like to preparers to be ``enrolled agents,'' meaning they have passed an IRS exam, or be accredited in taxation, having passed a test given by the Accrediation Council for Accountancy.
If you do use a tax-preparation firm instead of an accountant, make sure someone will be available year-round, in case a question comes up about your return. Although most H&R Block offices close shortly after April 15, the firm does have staff in district offices to help if problems arise.
Be very wary of accountants or preparers who promise you'll get a refund. They can't do that, nor can they base their fee on a percentage of the refund.