Once the tax year has come to a close, most taxpayers start thinking about tax season. Whether to use a tax professional or do your own taxes can be challenging to decide. The Internal Revenue Service (IRS) has many rules that make even simple returns difficult.
If filing your income tax return has you confused, you might want to consider a tax professional. Once you've made this decision, look for one that has professional credentials and the knowledge to file your tax return.
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Check Professional Credentials
You should know the professional credentials and designations of any tax preparer you hire. There is a difference between a tax preparer and a certified public accountant (CPA). Either one can file your federal income tax, state tax or local tax returns.
Before tax season begins, do your research. If you have a tax professional in mind, check with the Better Business Bureau (BBB). If there have been problems with other taxpayers, the BBB should know.
The state boards of accountancy will also be able to help you choose a CPA. First, ask the CPA if they belong to a professional organization like the National Society of Accounts. Do they have any professional designations? This will help you establish the CPA's standing with contemporaries and whether they are knowledgeable about tax law.
And finally, if they are a paid tax return preparer, make sure they have a preparer tax identification number (PTIN), whether they are a CPA or any other tax professional.
Directory of Federal Tax Return Preparers
Taxpayers can check on a tax preparer through the IRS's Directory of Federal Tax Return Preparers. You must enter your zip code and the tax preparer's last name. It will show you if the tax professional has a PTIN with the IRS.
All enrolled agents and paid tax return preparers must have a PTIN. If paid tax return preparers don't have a PTIN, they are subject to disciplinary action by the IRS Office of Professional Responsibility.
Types of Paid Tax Return Preparers
Although all paid tax return preparers are required to have a PTIN, there are different levels of knowledge and expertise.
There are two types of paid tax return preparers. The types are those with unlimited representation rights and those with limited representation rights.
Those with unlimited representation rights are enrolled agents, CPAs and attorneys. All these can represent any clients regarding audits, payment or collection issues, appeals and other tax situations.
Paid tax return preparers who have limited representation rights can only represent those taxpayers whose tax returns they have prepared. They also have other limitations.
You should know the professional credentials and designations of any tax preparer you hire.
Individual Income Tax Returns
If you have simple returns when tax season arrives, you may want to prepare your own tax filing. TurboTax is tax software that is available for non-commercial taxpayers who meet a specified income. It allows you to prepare taxes and e-file. When you e-file, you can receive your tax refund directly into your bank account.
But if you choose not to prepare your own taxes, make sure you use a CPA or basic paid tax return preparer who has tax software so they can e-file your income tax return.
Small Business Income Tax Returns
Individual tax returns are different from small business income tax returns. It may not be feasible to prepare your own taxes. Small business and self-employed individuals who receive a 1099 tax form are not eligible for TurboTax or most other personal income tax software. A CPA or other paid tax return preparer may be needed.
- IRS: Choosing a Tax Professional
- IRS: IRS Reminds Taxpayer Who Haven’t Filed Yet to Choose Their Tax Preparer Wisely
- IRS: Ten Tips for Choosing a Tax Preparer
- IRS: Directory of Federal Tax Return Preparers with Credentials and Select Qualifications
- IRS: Understanding Tax Return Preparer Credentials and Qualifications
- IRS: Frequently Asked Questions: Do I need a PTIN
- National Society of Accounts: Working for Tax and Accounting Professionals
- Turbotax: Your Taxes Your Way
- IRs: 1099 Form Misc.