Close-Up: Tax Preparer

Physician's Money DigestNovember30 2003
Volume 10
Issue 22

Presented by McNeil, makers of Tylenol.


Tax Preparer: A person who engages in the business of preparing tax returns or assists others in the preparationof tax returns for compensation.

There is a sense of satisfaction a person getsupon the completion of a difficult or challengingtask. Self-preparation of income taxreturns certainly falls into that category, andmany individuals who have simple financial lives areable to do just that. However, many people—mostphysicians included—do not have simple financial lives.And with new tax laws in effect, draft forms, such as forreporting capital gains or losses, have significantlygrown in length and complexity.

Enter the professional tax preparer. These individualsstay abreast of all tax law changes and can catchdeduction opportunities that tax preparation softwareprograms often overlook. These savings alone oftennegate the cost of tax preparation. Longer tax formsmean that small businesses will have to invest more timenot only in keeping records in order to benefit from newtax breaks, but in tax preparation as well. And sincetime is money, are you really willing to take on thatextra burden?

Who Prepares Taxes?

There are many different professional designationsthat a tax preparer can acquire, but the 3 most commonare certified public accountant (CPA), certified financialplanner™ practitioner (CFP®), and enrolled agent (EA).A CPA, perhaps the most widely recognized of the 3, hasa college degree and has passed an extensive examrequired for certification. The CPA designation qualifiesan individual to prepare business books, financial statements,and tax returns.

A certified financial planner™ practitioner also has topass an exam. They can assist taxpayers in planning fortheir future financial needs. Certified financial planner™practitioners also offer investment advice to help individualsaccomplish their financial goals.

EAs, similar to CPAs and attorneys, are qualifiedto represent a taxpayer in an audit. Certified by theIRS, in many cases, they are former IRS employees.Those who are not former employees must pass a 2-day exam and take a certain amount of continuingeducation courses each year.

There are, of course, many tax professionals whodo not have a specific designation. And while most ofthem are qualified, reputable individuals, you shouldbe cautious if you choose to go that route whenselecting a tax preparer.

Know Your Needs

The first step in selecting a tax preparer is to understandyour needs. How complicated is your tax return?Does it involve elements such as the sale of property,investment income, or income from the operation of abusiness activity? Not all tax preparers have experiencein all areas. It's a good idea to work with someone whohas experience preparing tax returns for physicians.Talk to your peers to find out who they use and if theyare satisfied with the individual's work.

One thing you don't want to do is make a selectionbased solely on price. Fees for professional services canvary greatly, and sometimes you truly get what you payfor. The same way you would shop around for the bestvalue when purchasing a new car, make sure you're gettingthe best value for your dollar when selecting a taxpreparer. And just as you want that car dealership to bethere when your car needs servicing, you want to makecertain that the preparer and their company will beaccessible after tax season ends, just in case a mistakeneeds to be corrected.

The following are some key questions to ask any taxpreparer whose services you are considering:

  • How many tax returns do you prepare each year?
  • Will you be preparing my taxes, or will it besomeone else at your firm?
  • Do you have specific references/clients whom Imay contact?
  • What is your experience with audits? What percentageof your clients has been audited?
  • Have you ever been penalized or fined for taxreturns you prepared and filed?

What type of professional credentials or designationsdo you maintain?

Once you select a tax preparer, make certain toorganize all of your records and have them accessible.It will ensure that the entire tax preparation processgoes smoother.

The Dos and Don'ts ofTax Preparation

The Die Broke Complete Book of Money

In his book (Harper Collins; 2001), author Stephen Pollandetails some fundamental tips to keep in mind whenselecting a tax preparer:

  • Avoid any individual or firm that offers to giveyou your refund before it actually arrives. They willgive it to you—with a hefty interest charge attached.
  • Make certain the tax preparer you hire carriesliability insurance.
  • Never sign a blank return, and do not sign areturn filled out in pencil.
  • Do not have your income tax refund check sentto your tax preparer.
  • Make sure the preparer gives you a copy of yourreturn as soon as it's filed.
  • Check with the Better Business Bureau or yourlocal Chamber of Commerce to see if any complaintshave been filed against the preparer.
  • For additional assistance in finding a tax preparer,check with the National Association of TaxProfessionals. The organization maintains an onlinelisting of professionals at

Pop Quiz

1) New tax laws have made some tax forms

  1. Shorter
  2. Longer
  3. About the same
  4. None of the above

2) The professional designation EA refers to

  1. Enrolled agent
  2. Educated agent
  3. Enriched agent
  4. Eastern Airlines

3) The CPA designation qualifies an individual to prepare

  1. Textbooks
  2. Business books
  3. Cookbooks
  4. Bestselling novels

4) You should ask a tax preparer how many tax returnsthey prepare each year. True or False?

  1. True
  2. False

5) When is it acceptable to have your refund checksent to your preparer?

  1. Always
  2. Sometimes
  3. Never
  4. Every other year

Answers: 1) b; 2) a; 3) b; 4) a; 5) c.

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