Many people, my wife among them, see Martha Stewart as a role model for how to do everything from baking a cake to fixing up a room to stacking firewood.
But the dominatrix of domesticity showed recently that she’s no role model for the ideal relationship with a tax preparer.
Stewart was hit with a $221,677 bill for back taxes by the New York Division of Tax Appeals, a bill she blamed on her tax preparer. Stewart, who flits between mansions in New York and Connecticut, says she lived out of state during repairs to her New York home in 1991 and 1992. New York disagreed.
Published reports said Stewart blamed the discrepancy on the fact that her tax preparers had not kept proper records.
“Stewart seems to argue that delegating the preparation of tax returns . . . to a tax professional should serve to insulate a taxpayer from penalties,” Administrative Law Judge Thomas Sacca said in his ruling.
While Stewart will appeal the decision, her situation serves as a reminder that hiring a tax preparer does not absolve us of our responsibilities.
That said, picking a tax preparer should not be a hit-and-run decision. Yet at this time of year, the rush is on for people hoping to find a tax adviser who can handle the current filing season and offer some tax planning for the future.
Tax paperwork is such a pain that many people hire the first person they meet willing to tackle the job. That’s a bit like letting fate decide who does the math on your most intimate and important financial documents.
Procrastination is another problem. People who wait until the last possible moment must accept a preparer who can fit them in; while they might still find a good tax adviser, they might also wind up with someone whose schedule was clear for good reason. The ideal time to line up a tax adviser is during times of the year when there is no immediate need for help.
Tax preparers run from certified, credentialed experts to people with a pencil, calculator, and the need to pick up a few extra bucks to pay off their holiday debts. Sadly, training and expertise are not required to call yourself a “tax preparer.”
Ultimately, your choice of a tax preparer should hinge on four key elements:
– Need. Start your search by determining the level of expertise needed to competently do your paperwork. Don’t pay limousine prices if all you need is public transportation.
The more complicated your return–if you sold investments or property, have long lists of itemized deductions, run a business from home, etc.–the more expertise you should look for.
You want a preparer who routinely files the forms you work with. The more unusual your situation, the more searching you may have to do and the more important the adviser’s credentials.
Gather everything that could affect your return–and review the complexity of previous filings–so that you can adequately determine whether a preparer meets your needs.
– Cost. Most preparers either charge on an hourly basis or by the forms needed to complete the return.
Get an estimate, and find out how you can keep costs down. (Hint: Deliver your papers in good order, not in a paper sack.)
Pay scale also is tied to expertise. The more you need, the more you can expect to pay, but don’t expect all enrolled agents–mostly former IRS employees with a comprehensive knowledge of the tax code–to be cheaper than all accountants. If price is important, shop around.
– Qualifications. Tax preparers must be current on the law. Their ignorance. be it of your personal situation or of the laws themselves, does not shield you from the government in the
– More on the Internet: Get advice on your taxes and send questions to an expert at chicagotribune.com/go/taxes event of mistakes, overzealous deductions or underpayment of taxes owed.
Seek out advisers who have taken continuing education classes within the last six months and are familiar with any new rules. Certain credentials require ongoing training or certification.
Find out what makes the preparer qualified to be your personal expert. You will find that advisers with similar professional designations often have different specialties, areas of expertise and training. Some enrolled agents and CPAs have gone on to get a master’s degree in taxation, but it is hardly required.
You can find a list of enrolled agents in your area at the National Association of Enrolled Agents’ Web site, www.naea.org. The National Association of Tax Practitioners, whose members include CPAs, individual preparers, enrolled agents, accountants, attorneys and financial planners, also has an adviser locator on its Web site, www.taxprofessionals.com.
Make sure the adviser’s credentials meet your needs. For instance, only a tax attorney, certified public accountant or enrolled agent can represent you in an audit.
– The scope, track record and policy of the practice. Some people just want a preparer to push the paperwork, while others want real counsel.
With about 600 working hours in a tax season, you need to decide who can best handle your return and give you the level of personalized service you want.
Find out who actually handles your return; if it’s not the person you meet with (which happens in many large firms), ask about the qualifications of the person who will do your number-crunching. And find out who will represent you in an audit. Just because some types of experts are allowed to do it doesn’t mean they won’t pass that chore on to someone else.
Ask how the preparer handles the gray areas of the tax code. If you want to take every available deduction and don’t fear becoming audit-bait, you are a bad match for a tax preparer who forgos possible tax savings in an effort to keep returns bland and unlikely to raise the eyebrows of an auditor.
Find out what percentage of returns the preparer handled in the last few years have been audited. If it’s 1 percent or 2 percent, ask why. (The IRS might be focusing on occupations and industries or niches in which the adviser specializes, or the adviser could be playing a little loose with the rules.)
Ask whether the preparer ever has been subject to practitioner penalties. Preparers don’t have to answer–and there is no clearinghouse for you to call to find out–so use your intuition. If the adviser gets edgy, trust your gut.
Never forget that it is as easy to lose your shirt by hiring a poor tax preparer as it is by botching the forms on your own.
Still, as Martha Stewart would say, if you can find an adviser whose practice and policy meets your needs, “It’s a good thing.”
