The 5 Types of Tax Preparers: Which One Is Best for You?


When tax season comes around every year, you have a crucial decision to make: Will you hire a tax preparer or go it alone? If your tax return is fairly simple and you're comfortable making the necessary decisions, by all means prepare the return yourself or use one of the many online tax-prep tools (some of these are even free). But if your return is more complicated, or you're serious about squeezing out every last deduction and credit, then it's wise to put your return in the hands of a professional.

If you do want help preparing your return, then you should choose a tax preparer whose credentials and expertise best meet your needs. Otherwise you could end up overpaying for expertise you don't need or, conversely, choosing a tax pro who's not qualified to handle the nuances of your tax situation. Let's go over your options.

No credentials

In many states, you can hang out a shingle and call yourself a tax preparer with no experience or education required. Such individuals doubtless work for cheap, but really, if you're willing to have someone with no qualifications do your taxes, you might as well do them yourself and save some money. Uncredentialed tax preparers are best avoided. Some states, including California and Maryland, require tax preparers to register and meet certain educational requirements. You can feel a little safer in the hands of such tax preparers, but look higher than them if you have an even slightly complicated tax situation.

Annual filing season program participants (AFSP)

The IRS' annual filing season program requires participants to meet certain continuing-education requirements, including a refresher course with a test, in order to register each year. These preparers are roughly on a level with state-certified tax-preparers or perhaps a little above, as they usually have stiffer continuing-education requirements. AFSP participants have limited representation rights, meaning they can represent clients whose returns they prepared with IRS auditors and customer service representatives, but not appeals or collections agents.

Enrolled agents

Enrolled agents possess the highest credential the IRS awards. They must complete a difficult IRS-sponsored exam and pass a background check in order to achieve EA status, then meet continuing-education requirements to maintain it. EAs have unlimited practice rights, meaning they can represent clients before any department of the IRS. They are the workhorses of the tax-preparer stable, and they can handle returns of any complexity level and even represent you should you be so unfortunate as to be audited or face collections demands from the IRS. Typically, an EA's tax knowledge is on a par with a certified public accountant's, but EAs tend to charge less -- making them a wise economic choice. (I should disclose here that I'm an EA, and so I might be slightly biased in this matter.)

Certified public accountants

CPAs are often the go-to choice for anyone with a complex tax situation. Unlike enrolled agents, they're certified at the state level, rather than the federal level. A CPA's primary purpose is accounting, but many specialize in tax preparation and planning. Such CPAs are an excellent choice if you have a complicated tax return or want to minimize your tax bill by trying something a little tricky.

One reason you might prefer a CPA to an EA would be if you want to retain him for other services in addition to tax preparation, such as preparing financial reports for your business. However, it's wise to check out the CPA in question and confirm that they're in fact a tax specialist before entrusting them with a complex return. Like enrolled agents, CPAs have unlimited practice rights before the IRS.

Tax attorneys

The ultimate tax experts, tax attorneys specialize in the most complicated convolutions of tax law. You probably don't want to turn to one for preparing your tax return, as their rates are as stratospheric as their expertise, but they are an excellent choice if you end up in tax court or if you're being audited and think you may have committed fraud on that return.

Finding your tax preparer

Once you've decided which level of tax expertise you'll need, hit the IRS Tax Preparer Directory to find a preparer of that level in your area. The directory lists tax preparers with active certifications in the region you select. It doesn't provide contact info, though; for that you'll need to turn to your state's CPA society or board of accountancy (for CPAs), the NAEA (for Enrolled Agents), or your favorite search engine.

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