Interview a Tax Preparer: Questions to Ask

Tax preparers are not all created equal. As with any other profession, there is a range of quality and skill. This guide will help you understand what questions to ask a potential tax preparer before you hire them.

Qualifications

There is a range of qualifications among accountants and tax preparers.

Certified Public Accountants (CPAs) are usually licensed by the state. Licensure rules vary by state and will be listed on your state board of accountancy. In many cases, a CPA license requires a degree in accounting, several years of supervised work experience, passing a licensure exam and ongoing continuing education. You can obtain the CPA's license number and verify online that their license is in good standing. 

CPA's are permitted to represent taxpayers in front of the IRS. However, not all CPA's prepare taxes. CPA's can also prepare books and records, audit financial statements, perform forensic investigations and may have very little knowledge about current tax laws. 

IRS Enrolled Agents (EAs) are credentialed by the IRS, either by passing a comprehensive three-part exam or through work experience as an IRS agent. An EA may or may not have an accounting degree or significant past experience. However, an EA must have extensive knowledge to pass the EA exam and their continuing education will all be in the area of tax, not other areas of accounting.

Other tax preparers may have extensive experience in preparing taxes and take annual tax preparation training. If you are interviewing a person who does not have a CPA license and is not an EA, they may still be qualified. You may want to ask additional questions about their training and background.

Tax Situations

When you interview a potential tax preparer you want to find out if they have extensive experience handling your particular tax situation. If you have a business taxed as an S-Corp but the tax preparer has not done an 1120S or a K-1 before, that is going to be a problem. If you and your spouse also own rental property, perhaps you will want a tax preparer who is familiar with real estate taxation.

Important: Make sure to take your prior year tax return with you to the interview. Allowing the tax preparer to see your most recent tax return will help if they have questions and ensure they understand your tax situation. 

What Tax Preparers are Not

Tax preparers do not have extensive experience in personal financial or retirement planning unless they have earned another credential in that field. They are expected to know the tax treatment of various investment products but it is advisable to also consult with an expert if you want help with financial planning. 

Tax preparers will know some aspects of the law and how each form of business (sole proprietor, LLC, S-Corp and C-Corp) work, but their advice cannot replace that of a qualified attorney. In some states setting up your business, for example, establishing an LLC, is a legal service only. In other states, a tax preparer can do this for you. If you are speaking to a tax preparer about legal matters, it is a good idea to also run it by an attorney.

Tax and Accounting Services

There are many different types of services. Knowing the type of service you want is key to making a good choice.

Year-end tax preparation is preparing your taxes by April 15th. You may want to prepare your own taxes, but if your business is taxed as an S-Corp it is not recommended to try and do the taxes on your own. S-Corps have several tax forms and they are complex. Only prepare your own S-Corp returns if you have had extensive training in the 1120S, K-1s and S-Corp basis. Same goes if your business is a C-Corp. S-Corp and C-Corp tax preparation costs more for a reason. 

Quarterly estimated taxes are due four times a year, not exactly on the quarter. These are different from payroll taxes. We are expected to pay taxes throughout the year, with few exceptions. Some tax preparers provide coupons (slips) to file quarterly tax estimates at the same time as they prepare your annual return. They do this by basing the quarterly estimates strictly on last years taxes. Other tax preparers use a combination of current year projections and last years taxes to come up with an accurate estimate, and they may charge extra each quarter for this service. You can also learn how to estimate your own taxes taking the Simple Profit Quarterly Tax Mini Course

Bookkeeping services are also often provided by tax firms. If you are signing up for bookkeeping services find out who will be performing the service; it may or may not be the person preparing your taxes. Bookkeepers have specific knowledge in accounting but may or may not have an accounting degree. It is a good idea to ensure you know how much time is involved in doing your own bookkeeping before you outsources this service, so you know if the price you are paying is worth it to you.

Tax preparers fall on a continuum with one end being "Trusted Business Partner Let's Meet Periodically Face to Face" and the other end being "Drop Your Tax Info Off and I'll Call You When I'm Done." Decide what kind of service provider you are looking for before you start interviewing potential tax preparers.

The Interview

So you are ready to interview someone to be your tax preparer! You know what type of tax preparer you want and the services you are interested in. Here are some questions to help you evaluate the candidate.

  • How long have you been preparing taxes?
  • What is your background, experience, qualifications, license or other certification? For CPA's ask for their license number and verity online they are in good standing. You may email the IRS to verify the status of an EA.
  • Do you prepare the taxes yourself or use staff? If staff, do you review the returns before they are finalized?
  • Do you primarily do individual or business returns?
  • How many returns do you prepare each year for small businesses like mine? 
  • What percentage of the business returns you prepare are for businesses like mine (sole proprietor, LLC, S-Corp or C-Corp)?
  • Would you expect me to use a particular software if I do my own bookkeeping, like Quickbooks or Xero?
  • Would you need access to my accounting software or is giving you an income statement at year-end sufficient? Is there a difference in price if you have regular access to my system?
  • What do you charge for each type of service?
  • Are there any monthly costs?
  • Do you tend to increase your fees by a set percentage every year?
  • If I have questions how quickly do you tend to respond? What is the best way to send you questions, by phone or email?
  • What would you expect from me as a client?

You are using these questions not only to gather information, but to assess their business character. How helpful and patient are they with questions? Do they seem to know their stuff or hesitate? Do they care about reassuring you or do they act above you in some way, as if you cannot possibly understand the tax implications of your own business. Do they speak in plain language or jargon? How comfortable to do you feel speaking to them? If you are looking for the trusted business partner type, you may be working with this person for years so it's acceptable to take time and be thoughtful about your choice. 

One key area for a small service business the new Qualified Business Income (QBI) deduction, also known as the 199a deduction. There was initially some confusion over this deduction and some tax preparers are not up to speed on the new tax law or how it impacts services businesses. Service businesses DO qualify for this deduction under certain income limits. If a tax preparer says you are a service business and therefore do not qualify, run away. It means they aren’t familiar with a basic rule of the new tax law.

If you had a service business in operation and taxable income last year, the deduction will appear on line 9. If you do not have it, you want to understand why not. If you were to have received this deduction and didn't, your new tax preparer can amend the prior year return for you.

Directories

Referrals from friends or colleagues may be the best way to find a new tax preparer. If you don't have a referral, online directories may be your next best option. Here are two directories to try:

National Association of Tax Professionals

TaxProfessionals.com

Bottom Line

Finding a quality tax preparer can be a challenge and a headache. However, if you are able to find someone you can trust, it is a valuable investment of your time. 

Questions: email [email protected]

Jennie Schottmiller, LMFT, CPA is a licensed marriage and family therapist who practiced as a CPA prior to becoming a therapist. She has an active solo therapy practice and runs a facebook group for clinicians and offers courses to help small business owners with accounting, tax and financial analysis matters.

Disclaimer: This blog is for education only. Please consult with a qualified professional when you have any questions about your personal accounting, tax or legal situation. Information contained in this post is for informational purposes only and not intended to replace professional advice.

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