Tax preparers: The risks and rewards

This may be the wrong year to tackle your taxes solo, said Beth Pinsker in Reuters.com. Normally, about 40 percent of Americans file their own returns, but this year many “do-it-yourselfers are giving up their calculators and turning to professional tax preparers.” That’s largely because people are more likely to need help dealing with “the flood of tax changes that were enacted as part of the fiscal cliff deal” earlier this year. Tax preparation companies, such as H&R Block and TurboTax, are fighting for new customers. Both companies now offer a “remote paid-preparer option” that allows users to upload their tax documents and work with a certified public accountant by phone, email, or video chat.

But taxpayers who plan to hire a preparer should be as careful as they “would be choosing a doctor or lawyer,” said Carmen Gonzalez Caldwell in The Miami Herald. No matter who prepares your return, you’re the one on the hook for any mistakes. Review your return before signing it, and ask questions on anything you don’t understand. Ideally, hire a preparer who’s an attorney, a certified public accountant, or an enrolled agent—only they can represent taxpayers before the IRS in audits. You should be especially wary of preparers who claim they can score you a larger refund than others; they’re the ones who charge you a percentage of that possibly fraudulently inflated amount.

Allowing a tax preparer to take a cut of your tax return “is almost always a bad idea,” said Jeff Reeves in USA Today. You’ll end up paying dearly. “Even more costly” are refund anticipation loans, which “advance taxpayers their refunds a few weeks before the IRS actually cuts the check.” Federally regulated banks have been forced out of this shady business, but some “‘fringe banks’ and payday lenders” still peddle these products, especially to low-income households that “need the money just to keep their heads above water.” Another variation on the same theme is the refund anticipation check, said Ann Carrns in The New York Times. In this scheme, a bank opens a temporary account for a client and the IRS deposits the tax refund into it. “Fees for the refund anticipation check and for tax preparation”—which can range from $25 to hundreds of dollars—“are paid out of the account, and the customer then gets a check, or a prepaid card, for the balance.” You won’t get your money much faster than you would from the IRS-—but the chances are very good that you’ll get less of it.

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