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By Brian Vnak, CFP, CPA, Vice President, Integrated Advice
| March 14, 2019
How many times have you seen the phrase, "Consult your tax adviser"? Many people do, and it's often good for their financial well-being, but that doesn’t mean you're getting the full story when you meet with your preparer.
Here are six truths your tax preparer may not want you to know.
Written by Brian Vnak, Vice President at the Wealth Enhancement Group. Vnak advises clients on income, gift, trust and estate tax issues.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
The only standard that preparers must have is an up-to-date Preparer Tax Identification Number (PTIN). Unfortunately, a PTIN confers absolutely no expertise in preparing and filing tax returns. Yes, an attorney or a CPA can have a PTIN, but so can the man who lives down by the river — as long as he is willing to complete an application and pay a $50 fee.
Remember, a PTIN does not confer expertise; education and experience do. When you work with certified professionals (such as enrolled agents, CPAs and attorneys), you increase the likelihood of dealing with a qualified professional who has the necessary experience to safely guide you through a complex situation.
The letters CPA on someone’s business card mean they are a tax expert, right? Hardly. Many CPAs are actually auditors who review corporate financial statements. They typically have little exposure to the tax side of the accounting world, much less the specifics of personal taxes. Even "tax" CPAs can be similarly unqualified to help you with your taxes. For example, a CPA could know all there is to know about international taxation of large publicly traded companies, but little about required minimum distribution strategies.
Ultimately, it's important to match your preparer’s expertise with your needs. Using a tax preparer who is also a CPA is my preferred standard — so long as the CPA has experience with individual income tax and other related issues.
The sheer volume of incoming returns within such a short period of time often means your return is prepared in stages by your preparer. A junior associate organizes and inputs your information, and a manager or partner reviews the return before delivering it to you.
That’s OK, and is considered to be a best practice by the industry because it offers a system with checks and balances. However, a tiered approach doesn't guarantee that the reviewer always catches the mistakes made by the preparer. The key to getting the best service is to understand how much time the reviewer spent on your return vs. the junior preparer.
Additionally, you might want to inquire if any part of the preparation was outsourced to another firm. If so, did your information leave the local area? Did it leave the country? Make sure you know.
Taxes are tricky, even for a tax professional. Accordingly, preparers often apply general principles vs. researching potentially advantageous exceptions. There are sound reasons behind this approach:
If you want to be more aggressive, say so. Just remember that you have to be willing to pay the fees necessary for the preparer to research the issue and reach an accurate conclusion. Be mindful of the costs vs. the benefits, and avoid paying $1,000 in fees to save only $1,000 in taxes.
In general, your tax preparer doesn’t want to send you a bill that’s larger than you expect. Let your preparer know that you want them to be on the lookout for tax-saving opportunities, and that you are willing to pay them to do so.
If you are concerned about "bill creep," simply request the preparer provide an estimate in advance of how much it will cost before proceeding on any specific opportunity. Most often, you will be able to determine together if it is worth their time — and your money — to research an issue.
Your tax preparer probably does a pretty good job of providing personalized service. Still, he or she may have hundreds, if not thousands, of clients. Keeping all these tax records is a costly, risk-laden exercise for the tax preparer. There are no industrywide standards on document retention, and, as a result, your records may ultimately be purged according to your tax preparer's unique policy. Knowing this policy upfront, and offering to pay for archiving services (if needed), will help you avoid being empty-handed if a tax official comes knocking.
Paying an expert to prepare your taxes is simple and makes a lot of sense. Finding the right person to prepare your taxes isn't. Make sure you thoroughly understand your preparer's competence and experience so that you aren't leaving money on the table come April 15.