Dreading tax season? You're not alone. Millions of Americans rely on professionals to navigate the complex world of deductions and credits.
But before you hand over your W-2s with a sigh of relief, remember: even the best tax preparers can miss something.
To avoid unexpected tax bills and lower your financial stress, beware of these nine common pitfalls lurking in the outsourcing shadows.
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A CPA is not the same as a tax pro
Seeing CPA (Certified Public Accountant) on a business card might induce some confidence, but that doesn’t necessarily mean they know how to handle your taxes.
Many CPAs focus on auditing and financial statements, so they might lack experience in personal taxes.
Even tax-focused CPAs may not suit your needs — knowledge of international corporate taxes doesn't ensure expertise in minimizing individual required minimum distributions (RMDs).
Choose a CPA with hands-on experience in individual income tax and related matters for a tailored fit.
Your tax preparer may not actually be your tax preparer
It’s not uncommon for tax returns to go through stages — and the person who owns the firm, or whomever you hired, might not be the one dealing with the paperwork.
Junior associates are often utilized to identify deductions and conduct an initial review. Then, there might be a senior advisor to validate the return.
Taking this multi-step path to your taxes leaves room for missteps, which could snowball into a major tax debt surprise down the line.
Mistakes happen — but you might pay for it
Tax preparers are human, and humans make mistakes. Unfortunately, their mistakes might mean you owe more, get penalized, or get slapped with interest. The contract you sign with a tax preparer defines their responsibility.
It's vital to understand both your and their obligations by carefully reading that contract. Usually, you're accountable for extra tax, while the preparer might address penalties and interest within contract limits.
You may bear the full cost if your mistake stems from inaccurate information. Read everything and meticulously review your return to avoid surprises.
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They might not be as qualified as you think
You might be shocked to learn that the only thing you need to become a tax preparer is an up-to-date Preparer Tax Identification Number (PTIN), but that’s it. Of course, it doesn't ensure tax preparation expertise.
Anyone can get one, so simply having a PTIN doesn’t mean much. Genuine tax expertise stems from education and experience.
Partnering with certified professionals — enrolled agents, CPAs, and attorneys — increases the likelihood of securing a qualified guide with the necessary experience for navigating intricate tax scenarios.
Your tax bill might be up in the air
The fact is that navigating taxes is challenging, even for professionals. Therefore, preparers often stick to general principles rather than delving into potentially beneficial exceptions.
This approach can minimize the risk of triggering a tax notice, control preparation costs billed hourly, and reduce the preparer's liability in case of an audit. But if you prefer a more aggressive strategy, tell them.
Be cautious about spending more on fees than tax savings, and discuss estimates beforehand to avoid unexpected expenses.
They might not keep your documents
While your tax preparer likely offers personalized service, managing records for hundreds or thousands of clients is a tall order — to say the least.
There aren't any standards for record retention except for the taxpayer, so your records might be purged per your preparer's policy.
Know what their policy is and offer to cover archiving costs, which might prevent issues if tax officials request info. That'll ensure you aren't left without crucial documents.
You might get outsourced
As you’ve no doubt experienced, outsourcing is widespread these days on anything from cable issues to tech problems — and it can also happen with your taxes.
That could mean a colleague in a different regional office, a preparer in another state, or even someone on the other side of the world.
International outsourcing requires a disclosure, but it can be easy to overlook. Ask questions about outsourcing.
You get what you pay for
People usually want to spend money on their passions — and taxes are probably not one of their passions. But being a cheapskate when it comes to tax prep comes with plenty of drawbacks.
The apprehension of incurring a hefty hourly fee can dissuade preparers from finding avenues to minimize your tax burden.
To overcome this, chat with your preparer and get them engaged. Spend some time with them. If you’re concerned about rising rates, request an upfront estimate before delving into specific opportunities.
That’ll ensure you and your preparer agree on the value of researching a particular issue.
You might not need a tax preparer
This is a big one: There's no need to shell out a few hundred bucks for a pro if your tax situation isn't too difficult.
If you just receive a W-2, a couple of 1099s, don't work in multiple states, lack partnership or other flow-through income, and perhaps itemize, you can easily handle a few issues by researching online.
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Vetting your tax preparer, understanding potential red flags, and knowing when DIY might suffice are crucial to navigating the tricky terrain of tax preparation.
Don't autopilot your taxes this season. Choose wisely to avoid wasting money and navigating the path to smooth tax filing.