If you’re a tax rookie, you can team up with the pros.
There’s something about the prospect of filling out a tax return that most people find intimidating. But don’t despair. You can get the help you need.
The Internal Revenue Service (IRS) is the place to start. You can visit its website at www.irs.gov, stop by an IRS office, or call one of its toll-free phone numbers.
You can get line-by-line guidance for doing your return in comprehensive guides from J.K. Lasser, Ernst & Young (EY), Consumer Reports, and others. These books are cheap, they’re updated every year, and they provide some handy tax saving tips. Many of them are based on IRS Publication 17, “Your Federal Income Taxes,” which you can get free from the IRS or download to your computer.
What might be even more appealing is some of the tax preparation software, available on CD or online, that walks you step-by-step through the filing process. You can find a list of approved software on the IRS website by clicking on the e file button and then on the list of partners. There are also a number of financial websites that offer free advice and general guidance.
You may want to get some help from the person who has been doing your return—perhaps one of your parents or a tax savvy friend or relative—or from a tax professional. In fact, almost half of all taxpayers pay someone else to do their taxes.
Finding the right person for the job can be almost as daunting as the prospect of doing your taxes yourself, in part because there are so many people advertising tax preparation services, and in part because it can be hard to evaluate a preparer’s expertise. Often a recommendation from family, friends, or coworkers is the best way to start your search.
Anyone who can legally charge you for preparing your return must have an IRS-issued preparer tax identification number (PTIN). So be sure to ask. Some preparers work independently, while others work for nationwide commercial tax preparation services.
If your tax situation is complicated because you have income from a number of sources, major tax-deductible expenses, or business expenses, you may want to move up the financial adviser ladder to work with an enrolled agent or a certified public accountant (CPA).
Enrolled agents have either worked for the IRS or passed a comprehensive IRS-sponsored exam. CPAs must pass rigorous state qualifying exams. And both must meet continuing education requirements, which helps ensure they’ll be up-to-date on changing tax laws—something that may be an issue for most of the current decade.
I tried to use tax software to do my taxes but had more than one job in the tax year. One job had a 401(k) and one didn’t. The program wouldn’t complete my return unless I entered 401(k) information for each job. I ended up getting my taxes prepared… I had to pay 50 bucks to an accountant.
— Frantz A., 23
If you’re looking for a preparer, it’s a good idea to talk to several candidates and ask some or all of these questions:
- Who are your typical clients?
- How many returns did you prepare last year?
- How much experience do you have with tax situations similar to mine?
- What are your professional credentials?
- Are you available to answer tax questions during the year?
- Would you describe yourself as aggressive or conservative in interpreting tax law?
- What happens if I’m audited or the IRS contacts me? Will you be available to help?
WHAT HELP COSTS
Surprisingly, tax help won’t break the bank. Most of the standard guides cost less than $20, and computer software programs are rarely more than $30.
If you use a commercial preparer for a fairly basic form, you can expect to pay up to $150 to $250, depending on whom you use. For a more complicated return, an enrolled agent may charge $300 or more, and a CPA $500 or more.
And do your homework. For example, you should have a sense of which form you qualify to use. If a potential preparer insists you use the 1040 when you know you can use the 1040A, that may be a sign to look for someone different. Remember, too, that being comfortable with the person you’ll be working with is also important. For example, you may prefer a conservative, play-it-safe approach to deductions over an aggressive one. And at the end of the day, you’re responsible for the accuracy of your return, no matter who prepares it.
A WORD TO THE WISE
Help from IRS publications and online resources is free and accurate, and always a good starting place. Assistance from an IRS representative is free as well. But experts suggest that you get a written copy of the advice you get from an IRS representative. Otherwise the agency isn’t responsible if you use incorrect information to report your income or calculate the tax you owe. If fines or interest payments are due, they’ll be your responsibility.
WHAT CAN GO WRONG
If you file your return on time, pay what’s due, and don’t play fast and loose with the rules, you probably won’t be hearing from the IRS. But you can make mistakes that the agency’s software catches. Then you’ll get a notice called a CP-2000, with the likely result that you’ll owe additional tax, and perhaps interest and penalties. You can pay up or you can respond with an explanation.
Sometimes a phone conversation will handle the problem, though you should always send a written confirmation that spells out how the inquiry was resolved, keeping a copy in your files. If the problem is more complex, you may want to get professional tax or legal advice. When you have to send documents, send copies, not originals. And keep a file of the entire exchange.
If there are bigger problems, you may face an examination, or audit. Then you have to show the IRS that all the information you provided on your form is correct. If you can’t back up your claims, you’re likely to get a bill for what the IRS thinks you owe, plus penalties and interest.