5 Questions to Ask your Tax Preparer

February is here! Which means Tax Season is here!  With the IRS officially opening for the season February 12, 2021, I decided to dedicate my February newsletter to talking about the tax preparer. 

There are many different ways to prepare your taxes – self preparation, H&R Block, hire an Enrolled Agent, your cousin / sister / brother, etc. or work with a CPA.  While all options have different advantages and disadvantages, today I decided to focus not on how you get your taxes done, but on the questions you should be asking of the person preparing your taxes … even if that person is yourself. 

Enjoy! And as always, if you have any questions or if something strikes you that you’d like more information on, please let me know.

5 Questions to Ask your Tax Preparer

1. Are you a CPA with an IRS issued Preparer Tax Identification Number (PTIN)?

While you may think I am a bit biased here, being a CPA myself, I do think it is important for you to know the difference between a general tax preparer and a CPA.  When a person makes the decision to become a CPA, they have made the decision to dedicate their life to the accounting profession to maintain their active accreditation. 

To become a CPA, there are education requirements throughout college, testing requirements, hours of studying and often times working under the guidance of another CPA for the start of their career.  After becoming a CPA, the learning does not stop.  In New York for example, each year a CPA is required to take a minimum of 40 hours of continuing education credits which is affirmed to the licensing board every 3 years.  They also have a network of CPAs that they are able to reach out and work with throughout the year. 

Additionally, if you are paying someone to prepare your taxes, ensure that they have an IRS Preparer Tax Identification Number.  This ensures that the preparer has registered and been approved by the IRS to be a paid preparer.

2. Am I getting the most out of my credits / contributions?

Tax law is complex.  There are so many things that can be added or removed from a return on an annual basis.  Maybe one year you are in college and the next you are not.  Some years you decide to contribute to an IRA and others you contribute to a Roth IRA.  While tax preparation only happens once a year, it is important to make sure it is a true representation of everything that you did during the year. 

Asking this question not only will help to initiate a conversation around what could have been missed, but it also initiates a question around IRA contributions.  Depending on your tax situation, contributing to an IRA could allow for you to pay yourself before paying the IRS. 

3. Are you current on new policies?

Coronavirus Aid, Relief and Economic Security (CARES) Act, Consolidated Appropriations Act, 2021, PPP Loans, Economic Impact Payments, and not to mention individual state regulations.  These are just some of the many policies and changes which occurred as a result of the pandemic taking a toll on our lives and the economy.  In any normal year this is an important question to ask of your preparer to make sure they are up to date, but this year is even more important. 

Economic Impact Payments (stimulus checks), a record number of people receiving unemployment and PPP loans issued both in round 1 and round 2, have had a large impact on 2020.  Additionally, if you moved states either temporarily or permanently during 2020, you could be subject to individual state laws as well.  It is ever important that the person preparing your taxes is not only familiar with the policies, but fully engrossed in the ever changing regulations and aware of how they can impact your taxes. 

4. Can you advise me on changes I can make for this year and can we review this mid-year?  I’d rather get a refund / have a balance due next year.

While at first this may seem like a strange question, the truth is that the amount that you owe or the amount you get as a refund year after year is 100% in your control.  Although the tax system may seem a bit haphazard and you go into each year’s tax meeting with fingers crossed and eyes closed, it does not have to be this way.  Your tax outcome is a direct result of the year you had.  If you pay the government / state too much, you get a refund, if you don’t pay them enough, you owe money. 

After seeing the results of your taxes this year, if you were unhappy, make a change.  Ask your tax preparer what you can do for next year.  Maybe this involves changing of withholdings at your job or on your pension.  Maybe this means being more wary of the capital gains or losses you realize when selling stocks.  Having this conversation can help you uncross your fingers and open your eyes when the time comes to prepare your taxes next year.

Additionally, if you have been following along with me for a while now, you know how important I feel mid-year tax planning is.  Having a conversation about the changes you can make for a year do not have to end when you leave your tax preparer’s office in the beginning of the year. 

There are many reasons you may want to consider doing a tax review thorough the year, including but not limited to: you made changes based on your prior year taxes and want to see if they worked, you decided to do something different with your finances (sell that stock which tripled in value, completed a roth conversion), your situation changed (unemployment, new job, divorce, marriage, etc.). Tax reviews are simple and very effective in figuring out how your actions have affected your income and your potential tax refund / balance due for the year.  Most importantly it will allow you to make changes right away during the year instead of playing catch up in the following year.

Curious about tax reviews?  Take a look at the information I have on my Tax Planning page including What is a Tax Review? and Why would I need one?

5. Are you able to grow with me year over year?

Although taxes are based on a single year’s activity, it is important to figure out if your tax preparer can grow with you.  A tax preparer should be a part of your life, because taxes are a part of your life.  If your dependent turned 16 this year, your preparer should be preparing you for a reduced credit in the following year at the age 17.  Similarly, if you are planning to get married this year, your preparer should be able to have a conversation with you about the new tax brackets, combined income with your future spouse and even what it means to file married jointly verse separately.

Not only can your tax preparer grow with you in your taxes, but having a preparer who can work with you to provide financial advice, tax reviews, developments in a business you may own or just overarching tax advice is invaluable.  While not all tax preparers are also a financial advisor such as myself, finding on who is able to willing to partner with your advisor can be a great asset to you. 

Wishing you a Happy Tax Season!  If you want more information or assistance with your taxes, please let me know!  I love working with clients, both current and new, and teaching them about their taxes!

Thank you, as always, for your time.