Thinking about hiring a tax planner? Take a number.
Roughly 55 percent of taxpayers now rely on professionals to file their returns. And who can blame them? Despite the plethora of tax-preparation software available, it's gotten no easier to wade through that 1040 form.
Since 1995, in fact, roughly 2,500 amendments have been made to the IRS code; equivalent to about one per day.
"Increasingly, people are finding that their time and expertise are not keeping up with the tax code," said Mark Luscombe, principal analyst with the federal and state tax group at tax law publisher CCH.
Of course, there's a big difference between tax filing and tax preparation. If you've got a straightforward return, and you aren't worried about finding strategies to pare your bills, then tax software may be an efficient and inexpensive way to file.
But if you don't have time to go it alone, or you want to ensure you're making the right moves to minimize taxes now and in the future, you'll need some help.
Before you pick a name from the phone book, you need to be aware that all tax experts are not created equal. In fact, anyone can legally prepare your taxes whether they're professionally trained or not. But be aware: it's you who is legally responsible for the accuracy of your own tax return in the event of an audit, regardless of who crunched the numbers.
As such, it's best to do some digging before handing over your W-2s. If you're looking for someone who can represent you before the IRS in the event of an audit, then you'll have to hire an Enrolled Agent, a Certified Public Accountant or a tax lawyer. But if you're unafraid of the good folks at the Treasury Department, your options broaden and become less expensive.
Who does what?
Enrolled Agents (EAs) are federally licensed by the IRS to represent taxpayers in audits, collection proceedings or appeals. Some prepare tax returns, as well.
To become an Enrolled Agent, candidates must take an exam on major aspects of tax law, though former IRS employees may qualify to become an EA without taking the exam.
However, all EA candidates must pass a background check by the IRS before they are licensed. The IRS Director of Practice keeps records of complaints or wrongdoing by Enrolled Agents. Individuals may obtain information about an EA from the IRS by faxing a formal request to (202) 694-1876.
If you want to hire an EA, your best bet is contacting the National Association of Enrolled Agents or call 800-424-4339 for an agent near you.
Sharon Cranford, director of public policy and external relations at NAEA said Enrolled Agents typically charge less than tax attorneys or CPAs - from $150 for a simple tax form to $500 or more for more complex returns. "Talk about the charges before you hire someone," she advised.
Certified Public Accountants. Contrary to popular opinion, not all CPAs specialize in tax preparation. But those who do may also be pros in sophisticated areas of tax law, such as international taxation.
CPAs must pass the Uniform CPA Examination then be licensed with the board of accountancy in the state they work in before they can practice. You can find out whether a CPA's record has been tarnished by disciplinary actions or complaints by contacting your state board, which you'll find at www.nasba.org.
Because of their training and expertise, CPAs often charge hefty fees - $300 to $400, depending on where you live, said Robert Doyle, CPA at Spoor, Doyle & Assoc. in St. Petersburg, FL. As such, it may not be worth your while if all you want is to file a basic return.
"People should use CPAs as a year-round resource so they can plan," said Doyle. "If you come to me on April 14, all I can do is file an extension for you and that won't do anyone any good."
You can get a list of CPAs in your area by contacting the American Institute of Certified Public Accountants or call (888) 999-9256.
Tax lawyers are another option, though they are generally the most expensive professionals in the field. You'll likely only need one if you're audited or if you need to do complicated tax-planning, for things like the Alternative Minimum Tax, before you file your return, said Martin Shenkman, a New York City tax lawyer and author of "Estate Planning After the 2001 Tax Act."
"If you're buying or selling a business, setting up a trust, selling a home, getting divorced -- those are all major issues to use a tax attorney to do the planning. But then go to your accountant to fill out the form," said Shenkman.
You can find lawyers in your area at Martindale-Hubbell's online directory. (Click "location/area of practice" from the home page to screen for tax attorneys.)
Financial planners with tax experience can help you, too. But be aware that the planning industry is unregulated so anyone can call himself a financial planner. For more details on how to hire the best financial advice, see our Money 101 lesson.
Avoid pitfalls by going to organizations that award credentials to planners who've met certain standards. The AICPA's Personal Financial Specialist credential, for example, is given only to CPAs who have passed a rigorous test on comprehensive planning topics.
You can find a CPA/PFS at www.cpapfs.org. Another option? Hire a Certified Financial Planner (CFP), who's had to pass exams to become accredited by the Certified Financial Planner Board of Standards.
Electronic Filing - Special Considerations
If you want your return processed quickly - or are worried about accuracy - consider using an Electronic Return Originator (or ERO). They are among the 124,000 tax preparers who are authorized by the IRS to file electronic returns. (In fact, it's against the law to file other people's returns electronically without the ERO status.)
The IRS notes that error rates for e-filings are slim compared to paper returns - less than 1 percent vs. 21 percent respectively.
An ERO must go through a thorough background check by the IRS, including fingerprinting. Those who are cleared by the agency are then allowed to identify their ERO status with an "IRS e-file" logo adorned with a yellow lightening bolt.
If you're looking for an ERO with a particularly strong record of filing perfect returns, head to the IRS Web site for a list of "Exemplary" EROs. An ERO may work independently or at large tax-preparation firms like H&R Block. They may have other credentials, too, such as a CPA license.
Another reason to e-file? If you're due a refund, you'll get it in about 10 to 14 days. Paper returns take longer. But no matter how you file, or whom who hire, you should consider using direct deposit for your refund since there's less of a chance it will get lost.
Top Tax Pros Weigh In
If you want an idea of the kind of in-depth advice you can get from a tax pro, see our recent roundtable discussion with the country's top tax pros, as they share tips on dealing with your 2002 return -- and ways to save next year.