Nothing about taxes is easy, and deciding how to fill out your return is no exception.
Should you hire a tax preparer or do it yourself? Go with one of the free online options or stick with the old-fashioned paper forms? If you're like approximately 80 percent of tax filers, you'll turn to tax software or a tax preparer. But that doesn't mean the end result will be error-free.
When the Government Accountability Office sent secret shoppers to 19 storefront tax preparers, each and every one goofed up something. More mistakes were found in returns prepared by so-called tax experts than by individuals, the 2006 GAO report also found. Yikes!
To me, the obvious solution is to simplify the darn tax code. But the IRS can't change tax law; that's up to Congress. So instead the IRS is focusing on the oversight of tax preparers.
Get this: Currently, anyone can prepare tax returns for money without registering with the IRS. But the agency recently announced that in future tax seasons, all paid tax preparers will be required to register.
Competency testing and 15 hours of annual education will also become a matter of course, although certified public accountants, attorneys and enrolled agents will be excluded because they already abide by similar standards to keep the letters behind their name.
The IRS is also expanding rules that currently apply only to the aforementioned professions, so that the agency can discipline all rogue tax preparers.
But some worry these new rules don't go far enough. In her annual report to Congress, Nina Olson, the National Taxpayer Advocate, who heads the taxpayer advocate service that helps individuals having problems with the IRS, wants the new rules to be extended to non-signing tax preparers -- preparers who may assist or advise on a portion of the return but aren't responsible for its overall accuracy.
Todd Koch, a certified public accountant with Knutson and Co. in Falcon Heights, is concerned that the IRS needs to hire more investigators to do a good job enforcing the new regulations, or else it will give tax preparers a false sense of security. Taxpayers will assume the rules are being enforced and let their guard down, he said. "If no one is enforcing the rules, the rules don't exist."
It's a valid concern, especially after recent reports of more than 100,000 suspicious claims relating to the first-time home buyer tax credit.
Boo-boos can result in more than tax dollars left on the table. You are ultimately on the hook for your return, even if your tax preparer goofed it up, IRS Commissioner Doug Shulman warned during a recent news media call.
So what can you do? Don't let your guard down, especially this year, since new tax breaks designed to stimulate the economy -- energy-efficient home improvements, the home buyer credit, education tax changes to name a few -- will make filing for tax year 2009 even more confusing.
Get recommendations. Don't head to Craigslist. Ask your family, friends and business associates. Look for someone with experience preparing returns like yours. For instance, if you run a small freelance business or own rental property, look for a preparer who understands the related tax code. And find someone you like as a person. Taxes are bad enough without being stuck with someone who drives you crazy.
Ask questions. How do they keep up with new tax laws? Do they have additional credentials? Will they be preparing your return or will they pass it off? Don't hire a question-dodger. Kathy Olson, an enrolled agent with Wings Advisors Tax Services in Apple Valley, suggests hiring a preparer who does more than hand a client a tax questionnaire. "You need someone to question what's not there," she said, explaining that discoveries about income overlooked and credits missed most often occur through good, old-fashioned chit chat.
Find a year-round preparer. For most of us, tax season ends on April 15. But the IRS is open year-round and doesn't hesitate to send taxpayers letters asking for additional documentation or announce an audit in the middle of summer. Find a tax preparer who is available to help if you receive a letter from the IRS.
In addition, the IRS suggests taxpayers be wary of preparers who claim they can get you the most money back or base fees on the size of your refund. And only work with a taxpayer who will sign your return and provide a copy.
Bottom line: Between 900,000 and 1.2 million people prepare returns, the IRS estimates. If you're unsure of what you see or hear from a tax preparer, keep on looking.
Kara McGuire • 612-673-7293 or kmcguire@startribune.com. Follow her on Twitter: www.twitter.com/kablog.
