Like every year, a lot of taxpayers this year will gather their 1099s and W-2s and head to a tax office to get their returns filed. Due to a professional setting, a name recognized across the nation, or past with the tax office, these taxpayers innately trust these preparers.
However, many taxpayers are not aware of their preparer’s truth. More than half of these tax preparers do not have a government recognized license; they charge not only a high but also a hidden fee frequently, and they are more prone to making mistakes. The major problem is that many filers are not aware of the professional credentials of their tax preparer. The majority of them are unregulated and unlicensed.
Secondly, preparers, who are unlicensed, can be extremely expensive. Their fees often get hidden within the generous refunds received by their clients. For instance, if the IRS (Internal Revenue Service) is giving you a refund of $7,500, it may get marketed as $6,700 by the preparer—the $800 fee getting buried in the paperwork. The high cost may never come to the taxpayer’s knowledge as they may find a refund of even $6,700 good enough.
Third, the services of an unlicensed preparer do not justify the high fees. There are more errors in their returns than those prepared by a licensed preparer, trained volunteer, or taxpayer. Preparers who are not licensed are more prone to making mistakes on a return. As found by a GAO study involving 19 unlicensed preparers, the refund was calculated accurately by only two of them. Another solid report in 2014 by the IRS shows that an excessively large refund was claimed by about 49% to 54% of unlicensed tax preparers. Some tax preparers also commit outright fraud.
But the taxpayers are ultimately supposed to answer the IRS. The mistakes of a preparer can result in an audit that can cause an expensive IRS bill and stress and many sleepless nights.
Luckily, cheaper and high-quality options are there for taxpayers. The fee of a professional licensed preparer is lesser on average as compared to an unlicensed tax preparer. A recent survey showed that the average cost to get a state and federal tax return filed by a licensed preparer is $176.
The IRS report from 2014 shows that licensed preparers are less prone to making mistakes and errors on returns that claim the EITC. Even tax returns prepared by the taxpayer have lesser mistakes- with even ordinary tax software costing significantly less. There are also a few completely free options.
The IRS across the country funds
VITA (Volunteer Income Tax Assistance) programs. This program involves IRS certified volunteers preparing free tax returns for taxpayers whose yearly income is under $54,000. It was founded in an IRS analysis in 2017, about 92.79% of all the tax return this program completed in 2016 were completely free of any errors. There are also many options online that allow you to prepare your taxes yourself. If something terrible happens and the filed ends up receiving an IRS letter, there are Low-Income Taxpayer Clinics, that counsel and possibly provide representation to taxpayers at no cost.
While not every tax preparer who does not have a license is disreputable, taxpayers are generally paying more fees for them rather than for those options that are not only cheaper but also less risky.
Filers should reevaluate their filing plans this season and try to avoid preparers who are not licensed. They should also at least check the credentials and fees of their preparer. Taxpayers should also look for a nearby VITA site as volunteers may provide them with an additional opinion on their previous filings, which unlicensed prepares may have prepared inaccurately. It is also possible to get prior-year returns amended at some sites.
Taxpayers need to unveil the truth about their preparer this year. They should inquire about their education, credentials, and fees; look for someone else if the preparer is not living up to their expectations; and, lastly, see if there is an option to get your tax prepared for free.
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