Getting tax help can be a great way to make sure you're in compliance with IRS rules and to navigate the challenges associated with complying with the U.S. tax code. Unfortunately, not all tax preparers are equally skilled -- and some can be downright dishonest and end up doing things that actually cost you money instead of helping you save.
Whether you got tax help last year and found you overpaid or are looking for an expert now to assist you with understanding tax issues such as quarterly estimated taxes, you need to make sure the person you turn to for advice has your best interests at heart.
While it can be hard to determine if your tax preparer is actually on your side, there are some red flags that suggest something is amiss with the professional helping you out. Here are four big signs that your tax preparer is bad news.
1. Your preparer promised you a big refund or the chance to win prizes
Each year, when tax season approaches, you'll find lots of tax prep services try to entice you to use their services -- often by making special offers. Preparers may promise they'll help you get a huge refund or may even offer you a chance to win prizes if you use them to do your taxes.
Unfortunately, whenever an offer from a tax preparer sounds too good to be true, it probably is. Some of these companies aren't very honest, encourage you to be dishonest on your tax returns to get more money back, or simply charge exorbitant fees for helping you claim tax refunds and credits you could've claimed on your own using any free tax prep software.
A legitimate tax preparer won't make you a promise of a big refund because they can't know what you're entitled to until they look at your financial info. They won't need to offer prizes because they'll have credentials, and they won't ever encourage you to lie on a return because doing so is a violation of the law.
2. Your preparer is offering or advising you to take a loan or pay fees out of an anticipated refund
Refund anticipation loans used to be a big money maker for the lenders that offered them. New regulations have capped fees, so there are fewer companies offering refund anticipation loans. But, it is still possible to get an advance on your tax refund and the fee is still pretty high for doing so.
If your tax preparer is encouraging you to borrow against your refund, you should run the other way as there's no reason to do this. If you file electronically and get your refund with direct deposit, it doesn't take much time at all to get your money direct from the IRS and there's virtually no reason you should pay fees to get it a little bit early.
Likewise, preparers who offer to do your taxes for no up front fee and to take money out of your refund to cover their costs often charge exorbitantly for the tax prep services they provide to you. You don't want to go to one of these tax preparers and pay much more than you should for basic tax help.
3. Your preparer hasn't fully explained fees up front
A legitimate professional will let you know how you're charged for tax help -- whether you pay an hourly fee or a flat rate for the services provided to you. If you can't get a straight answer on fees or if your tax preparer offers to take a percentage of your refund to cover fees, this is usually a sign you're going to end up paying far more than you should for the services you get.
4. Your preparer doesn't have a PTIN
Legitimate tax preparers must register with the IRS and, when they do so, they're given a Preparer Tax Identification Number (PTIN). The preparer you use should list the PTIN on your tax return.
If your preparer didn't list a PTIN, that's a big red flag that they aren't in compliance with IRS requirements and that you should not be using them to do your taxes. You can also ask your tax preparer what his or her PTIN is, or can check the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications on the IRS website to see if your preparer's name is listed.
Start looking for a new tax preparer today
If you recognize any of these red flags in the tax preparer who helped with your recent returns or in any tax professionals who offer you assistance with tax issues during the year, it's time to make a change. The good news is, you have some time before next years taxes are due so you can take this opportunity to research tax help in your area to find the right person to assist with your tax issues going forward.