7 secrets tax preparers don't want you to know

Sakorn Sukkasemsakorn // Canva With tax time fast approaching, you’re likely wrangling W2s, rounding up receipts, and digging into all the documents you collected and filed away over the last year. It can be a lot to keep track of, and since you do it once a year and then only think about it next tax season, you probably need to become an expert. Sure, guided tools or programs make the burden easier to bear, but it’s no wonder many Americans hire someone to take it off their plate. However, the cruel joke is that if you offload your tax-filing responsibilities to someone else, that leaves you vulnerable to a whole new host of potential problems. If you have a “tax guy,” or if you hire a person or outfit to file your taxes on your behalf, Wealth Enhancement Group explains that there are some things you need to be aware of to ensure you get the best outcome for your situation and that everything is also above board. Below are seven things your tax preparer may not want you to know. 1. They may not be up to date with current tax laws. The last five years have brought several changes to the tax code. There was the Tax Cuts and Jobs Act (TCJA) of 2017, and many state tax laws changed in 2018 and 2019. Then, 2019 saw the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. There were also COVID stimulus checks with their host of regulations in 2020 and 2021. Now, there are even newer rule changes to unpack in the SECURE Act 2.0, which was passed right at the end of 2022. Make sure whoever you choose to prepare your taxes is ready to stay up to date with the new rules so they can provide the best possible advice for your situation. 2. Credentials aren’t always required The only standard that preparers must have is an up-to-date Preparer Tax Identification Number (PTIN). Unfortunately, a PTIN confers no expertise in preparing and filing tax returns. Yes, an attorney or CPA can have a PTIN, but so can John or Jane Doe at the end of the block. Education and experience make a tax person a tax expert. When you work with certified professionals (such as enrolled agents, CPAs and attorneys), you increase the likelihood of dealing with a qualified professional with the necessary experience to guide you through a complex situation safely. 3. “CPA” does not equal “tax expert” The letters “CPA” on someone’s business card means they’re 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 the international taxation of large publicly traded companies but little about required minimum distribution (RMD) minimization strategies. Ultimately, matching your preparer’s expertise with your needs is important. Using a tax preparer who is also a CPA is a good starting point–as long as the CPA has experience with individual income tax and other related issues. 4. They didn’t prepare your return 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 considered 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 understanding how much time the reviewer spent on your return versus the junior preparer. 5. They may not minimize your tax bill Taxes are tricky, even for tax professionals. Accordingly, preparers often apply general principles versus researching potentially advantageous exceptions. There are sound reasons behind this approach, as it can: Reduce the odds of provoking a tax notice (and the potential of a higher tax bill). Help contain costs since identifying exceptions takes time, and your preparer is often paid on an hourly basis. Reduce the preparer’s liability in the event you are audited, lose, and try to recover the funds. However, the ball is in your court here. If you want to be more aggressive, say so. 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. 6. If they make a mistake, you might be on the hook Tax preparers are human, and mistakes happen. When errors occur, they can result in three negative consequences: additional tax owed, penalties, and interest. Suppose the error is truly the fault of a tax preparer. In that case, their responsibility is defined in the contract you sign with them, so be sure to read it carefully to understand your responsibilities and theirs. Typically, additional tax is your responsibility, while the tax preparer may cover penalties and interest. But the amount of their obligation may be limited in the contract. You could be paying for everything if the mistake is due to you not providing accurate or complete information. Make sure to review your tax return before you sign it. 7. They’re not your personal filing cabinet Your tax preparer probably does a pretty good job of providing personalized service. Still, they 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. What to do when hiring a tax preparer Paying an expert to prepare your taxes is simple and makes sense. Finding the right person to prepare your taxes is a bit more complicated. Ensure you thoroughly understand your preparer’s competence and experience so that you aren’t leaving money on the table when it’s time to file your taxes. Additionally, while actually filing your taxes might seem like the most important step in your tax strategy, that couldn’t be further from the truth. Filing taxes is akin to simply recording history. What’s really important is how you plan for taxes and incorporate them into your overall financial plan.