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3 Questions to Ask Yourself Before Hiring a Tax Professional

By Jason Hall – Mar 25, 2016 at 7:02AM

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Doing your own taxes can be an unpleasant chore. But there are a few things you need to think about before you delegate the task to a pro.

Time for a tax pro? Ask yourself these three things first.

The wages of sin are death, but by the time taxes are taken out, it's just sort of a tired feeling. -- comedian Paula Poundstone.

If you haven't done your taxes yet, and you're feeling overwhelmed by all the forms and complexity, you may be thinking about hiring a professional to take over. According to the IRS, more than half of the returns filed every year are submitted by tax professionals, so you'll be far from alone if you make the call to pay someone to deal with your taxes this year. 

But before you hire a tax professional, there are a few things you need to ask yourself -- and these three questions should be at the top of the list.

1. Why am I hiring a tax pro?
While the majority of tax filers still pay an expert to handle the task, the number of Americans who do it themselves has steadily increased. In 2011, 72.4 million e-filed receipts were submitted by professionals, while 39.8 million were self-prepared. In 2015, 78.4 million e-filings were submitted by pros, while self-prepared e-file returns jumped to 50.4 million. 

The bottom line is, technology is making it much simpler for most people to file their federal returns. So if you have a simple, straightforward return (only a few tax forms such as W2's, and income of $62,000 and below), it may be simpler than you realize to use the IRS electronic forms -- not to mention free. 

Even if your situation is a little more complex, there are simple, affordable online tax preparation programs, including TurboTax from Intuit, and easy-to-use online and downloadable tax filing software from H&R Block, to name two of the most popular choices. Not only do these programs walk you through the steps, but they are designed make the process much more straightforward. 

You may not even have to manually input all the information for many of your tax forms. Many of the available programs can automatically pull information from tax forms stored digitally elsewhere, including W2's from many employers, tax documents from online brokers, and others. Not only does this make the process simpler, but reduces the chance of errors. 

So before you start shopping for a tax professional, take 20 minutes and review your online filing options. It could save you time, money, and be easier than you expected. 

2. What kind of pro do I need? 

Let's assume that your answer to the first question was something similar to, "Because my situation is more complex than I can handle using IRS Free File or TurboTax." Now, its time to determine what sort of professional would be best for you.

The majority of people who prepare income taxes are not certified public accountants. And while a lot of CPAs do tax prep and filing for individuals, many of them focus on areas of accounting that don't have much to do with personal taxes at all.

Frankly, you're probably better off working with an "enrolled agent"  who isn't a CPA, rather than an accountant who doesn't deal as commonly with taxes. Enrolled agents typically specialize in tax preparation, and have passed a multi-part IRS certification test. While an enrolled agent may or may not be a CPA, their focus on tax preparation is what you'll probably need. So don't feel you need to shy away from a tax prep company simply because it isn't staffed entirely by CPAs.

Since tax preparation is a seasonal business, there are also seasonal tax preparers, especially working for larger tax preparation companies. The IRS has a program for these "Annual Filing Season Program Participants," with continuing education programs to keep them abreast of changes in the tax code from one year to the next. 

Depending on where you live, some tax preparers may have no certifications or formal credentials at all. This doesn't automatically make them unqualified, but it does put the onus on the customer to verify their expertise and quality via references, the Better Business Bureau, or local Chamber of Commerce records. 

3. How can I be sure I'm picking the right tax pro for me? 
Once you're sure that you need a pro, you need to make sure you choose wisely. Here are some important considerations:

  • Can you verify their competence (credentials, references, etc.)?
  • Can you verify their experience (i.e. individual tax preparation of situations similar to yours)?
  • How are their fees structured? How much will you pay?
  • Will they assist you in developing a tax plan for next year?

Reach out to your friends and family, and you'll probably get recommendations for several tax pros who could potentially meet your needs. But before you pick one, think about the bigger picture, and make sure their expertise lines up with your situation and needs. Also, a good tax professional will be willing to help you put together a plan to improve your tax situation for the future. And that will make tax season next year -- and in years to come -- much more bearable. 

Jason Hall has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Intuit. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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