Calling for help this tax season

As tax laws become more complex each year, returns become more time-consuming. That means fewer taxpayers are sitting down with pencil and calculator to tackle IRS forms on their own. According to the Tax Policy Institute, 62 percent of U.S. taxpayers used paid preparers to do their returns, while another 25 percent used tax software for assistance.

From software like TurboTax to sophisticated tax attorneys, there are many ways to get your forms filed to the IRS, with varying levels of experience and appropriateness to your personal situation. But you need to take the initiative to make sure you’re getting the right advice since anyone can print a business card and call themselves a tax preparer, as there are no nationwide regulations on their expertise (only California and Oregon have licensing requirements). Selecting the right tax preparer could make the difference between receiving a healthy tax refund, or at the other extreme, being audited by the IRS.

Tax software
Nearly a quarter of Americans use software, such as Intuit’s TurboTax and H&R Block TaxCut Standard, which is usually the cheapest tax preparation methods you’ll find.  Software is best for those with relatively simple returns who use the 1040EZ or 1040 short form — if you earn most of your income from wages and you take the standard deductions, or if you have only a few itemized deductions.

But if you think the software will also save you time, think twice. According to IRS statistics, the average 2004 itemized tax return took an average of 33 hours to prepare, and those using software spent nearly ten hours more to complete their taxes than those who didn’t.  Although software is updated annually to address the changes, using a software program requires time and it only works if you know what information to enter, says Chris Siolka, a tax curriculum specialist for the National Association of Tax Preparers. 

“First, you have to learn how to use the software, then you have to make sure you’re inputting data in the right places for the calculations to be correct. And the software doesn’t give answers to your specific questions so you may have to call the support center for more help.” 

Storefront tax preparers
Professionals at the national tax preparation chains, such as H&R Block, or local outlets charge less than full-time tax pros. If your return is a fairly simple one, such as a short form, then this could be an appropriately inexpensive option, although you could pay $200 or more for itemized state and federal returns with additional schedules.

Also, the preparers’ training and experience could be at any level. The chains offer in-house tax training, but the minimum credential required for part-time seasonal staff is usually a high-school diploma. Many of them are paid not much more than minimum wage plus commission, and they may be preparing tax returns as a second job. If you go to a chain, ask for the most qualified person available, such as an enrolled agent. If your return is complex or has tax situations specific to your industry, some preparers may not know how to maximize those particular deductions.

If you are audited, the office may or may not assist you depending on its sales agreement, although some preparers offer an insurance policy for an additional fee that covers interest and penalties incurred because of errors they may have committed. They are allowed to accompany you to a meeting with the IRS if you need to explain information on your return, but they do not have the legal standing to appear in place of a taxpayer at the IRS.

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