How Do You Know Your Tax Preparer Is Competent?

Only an expert can decipher the nearly 74,000-page U.S. tax code. All told, about 1.2 million tax preparers make a living compiling tax returns and estimates are that about half of them were filed by unregulated preparers.

A federal appeals court threw out proposed IRS rules regulating tax preparers last month, leaving the tax preparation industry largely unregulated for another year. Two government studies have raised concerns that many preparers are not competent.

True tax preparers should have a Preparer Tax Identification Number, issued by the IRS. Ask for it. When your final return is complete, it should have this number included. Check the IRS website to see if this tax preparer has been disciplined. Ask for their credentials.

Warning: If they ask you to inflate your charitable donations, chances are you are working with someone who charges a percentage of your final return. Do your homework before you let someone do your taxes. Those guaranteed refund signs are a real warning sign because no one can guarantee a refund until asking you for thorough financial records.