Here are seven myths about a tax consultant. Before hiring anyone, you should check them out.
1. A consultant with a big name must be a good one.
Actually the work of preparing your tax return is not entirely the skill of a tax consultant. If you go fully prepared with all the details and supporting receipts, you are doing most of the work. In a system of franchises, with the thousands of employees, there is little quality assurance. When under-cover staff from the government accountability office went to get returns prepared by some of the employees of the big tax preparing franchises, there were shocked to notice that almost all the returns prepared by these employees were incorrect to some degree. Roughly 135 million Americans file their tax returns every year and 2/3 of these go for help. There are big names in the tax consultancy services and you cannot assume that all of their employees will be expert in their job.
It is possible that you are hiring a tax Consultant because you have got better things to do on your weekends. But if you are hiring a consultant because you think he is smarter than you, maybe you should think again. It is proved in various surveys that tax preparers make more mistakes and costlier mistakes!
The details of one study by IRS shows that 56% of returns prepared professionally were having critical errors as compared to 47% of those made by the taxpayer himself. Also the taxpayers who were audited later and who took help from consultants owed an average of $363 as compared to those taxpayers filing on their own, owing $185
2. Tax preparation is not a science but it is an art
Many tax preparers know that 99 % of the returns will not get audited. This is because the returns are of a routine nature. If you have only one W-2 then there is nothing much in preparing your return. Unless you have a big capital gain or unusual medical expense, there is nothing fancy about preparing your tax return.
3. No need to shop around, my deal is the best
There is no standard price for preparing taxes. Some will Charge per hour, while some others will charge per form. Some will charge on the basis of qualifications they have and some others will charge depending on where you live! Generally people rely on word of mouth and they do not shop around for prices.
It is a better practice to ask for estimates. Some consultants will argue that the cost will depend on the time spent on it. However you can always take an estimate based on your last year return.
4. Tax consultants are not for selling you something but they are just helping you to prepare your return.
In the real world the tax preparers are not much keen on what they make by filling form 1040. They’re interested more in selling you something – a loan against refund, a retirement account or some insurance. In most of the cases, you may not need what they are selling. And these extras are more damaging than normal preparation. It is shown in survey that more than 81 per cent of those taxpayers who were advised to open an “express IRA” paid much more in fees then there earnings in interest.
5. When you are hired a tax preparing franchise, they will prepare return for you
Many tax preparing firms have started outsourcing preparation of the returns. That means your details could be sent halfway around the world without your knowledge. It is very scary to realize that your social security number, your name, address, date of birth and account numbers are sent electronically to some other overseas location. In some other cases this may result in identity theft. An overseas outsourced company may charge much less to do the work overnight, but considering the risks involved, it may not be a better deal for the taxpayer.
6. When you have hired a tax preparing agency, your return will be prepared by qualified people
There are many sharks in the water. Almost anyone can say he is a tax preparer. There is no compulsory licensing, no tests, and no regulations at all. There is no standards for the qualifications of a tax consultant. There are about 600,000 tax preparers who are under the unregulated according to the IRS wing National Taxpayer Advocate. Some may set their shop in a real estate office!
You may not get the help from these type of people if there is a tax audit.
7. You can always go at the last moment to a tax preparer.
Generally from March onwards tax preparers are to be easy talking to new clients. So you may not get a good service if you shop around in the final moments. You should talk to a tax preparer in the months of October and November. That time they have enough time to answer your questions and make useful suggestions on the basis of your previous returns. Also you have some time to plan before December. You will lose your flexibility by approaching a tax consultant at the final hour.
You should not take the tax consultants for granted. Plan well in advance to get most out of them.