10 Ways to Get the Most Out of Professional Tax Prep
Despite the proliferation of DIY tax preparation software, some people prefer a professional tax preparer who happens to be a human. There is no shortage of service providers -- nationwide tax prep chains, regional chains, small accounting firms, and independent accountants, each with their own fee structures. These 10 money-saving tips are particularly useful when working with a tax professional who charges by the hour.
Related: 10 rule changes taxpayers need to know in 2016
Related: Don't believe these 12 common tax myths
National chains such as HR Block and Liberty Tax generally charge by form (or "by complexity," in industry jargon). The starting base rate is about $42 at HR Block and about $100 at Liberty Tax. Small, independent tax preparers generally charge by the hour, a business model that is arguably fairer to both parties because clients pay for the very specific job performed. Poring through lots of receipts for business expenses, for example, is more labor intensive than filling out a tax return with just a W-2 for wages from a steady job and perhaps one 1099-MISC for payment from a small contracting job.
Related: Strange but true tax laws from all 50 states
The most crucial step to keeping a lid on tax preparation fees is to get organized. In other words, don't pay a professional to go through shoeboxes of receipts. Carol LeBlanc, a certified public accountant in upstate New York with a specialty in small businesses, says tax preparers know there's a threshold price they can charge without getting pushback. And that limits the time they're willing to commit. "You want them to spend that time on your tax situation, not organizing your documents," she says.
The work will proceed far more smoothly if the tax professional receives all the forms and documents in one bundle. It's better to wait until all the documents are available than to send them in piecemeal, advises Eva Rosenberg, an enrolled agent with the Internal Revenue Service and creator of TaxMama. The one-at-a-time approach means the tax pro must log in each one separately and pick up your file multiple times, which increases the bill.
Open and organize all the forms before passing them on to avoid paying the tax preparer to open mail. At the same time, double check that the information is correct and there are no obvious errors. If there are, this is the moment to clear them up -- and avoid needless back and forth.
If the preparer asks for additional details, forms, or anything else, provide it in a timely fashion. Even if the answer is not readily available, communicate that fact. One tax professional cautions that there may be a "nuisance fee" hidden in other charges if the staff has to make too much of an effort to reach a client.
Having all the documents is a good start, but getting them in the correct order is the follow-up step. Many tax preparers provide an organizer to fill out before clients send in the paperwork or meet in person. The organizer is usually laid out in the same order as the tax software the professional uses, so save them time (and save yourself money) by sequencing the papers in the same order. Keeping W-2s, 1099s, and other financial documents together with a paperclip further expedites the process.
Being familiar with last year's tax return is especially important if using a new tax preparer this year. Try to recall the questions asked in the past and put in some effort to prepare answers. Chances are those same questions will arise again this year.
There is no reason to hand over a 1099-MISC and a pile of invoices stamped "paid" from the same client for multiple contracting jobs. Again, double check the numbers and get amended documents promptly, if necessary, but one copy will do. Why pay the preparer to review the same information in more than one place?
Following all the tips that can make the tax preparer's job less time consuming is no guarantee of a significantly reduced bill. Anyone who has used the same tax professional for several years might see a lower average charge over time. Perhaps the office handled a big mess in the past, and undercharged as a way to retain business. This time the preparer may want to recoup that cost. Avoid any surprises by asking for a quote up front and try to negotiate a better rate based on being prepared ahead of time.
The tax software companies know they can groom loyal customers by having the templates auto-fill information from the previous year. Tax preparers often provide the same service, saving themselves time and users money. More importantly, points out Patty Hutson, a CPA at Jenkins Company, P.C. in Southfield, Michigan, returning year after year gives the tax professional a chance to become an adviser and not just a preparer.