Every year, hundreds of thousands of Americans have their tax returns prepared by a "licensed preparer" who promises bigger than normal refunds. Are you getting a good deal or asking for an audit?
Fraud Is Easy, Taxes Are Hard
Combine a complex tax code with understaffed consumer protection agencies and you get a situation ripe for tax fraud. The most frequent victims are immigrants and families with low income, but anyone can fall victim. When was the last time you read any of the 70,000 pages in the Internal Revenue Code? Do you know whom you can claim as a dependent? Are you entitled to a child tax credit or education credit? Think how easy it would be for a tax preparer to fudge some numbers, inflate your refund and ask for a percentage of the profit. You might never spot the error, but your IRS auditor would.
Here are a few of the dishonest ways people get large tax refunds:
- Excessive exemptions
- Incorrect credits
- Unwarranted deductions
- Large losses for side businesses or hobbies
- Inflated personal expenses
- Reduced income figures
Watch Out for Small Fees and Big Guarantees
Whether you get your tax return prepared in an accountant's office, at the H&R Block store or in your Uncle Sal's basement, you need to know that you are responsible for the return you submit. Some preparers will help out with your tax defense during an audit, but ultimately it's not their money or reputation on the line.
Be extra cautious around these preparers:
- Criminals waiting to scam you out of a refund: They may send the IRS their own checking account details instead of yours. They may operate individually or as part of a network. They pop up one day and disappear a few weeks or months later. They're not licensed to practice in your state, and they use free software anyone can get off the Internet.
- Seasonal employees with good intentions and little training: They let you have that home office deduction because they want to go home in 10 minutes and you mentioned you make jewelry in the guestroom. They often have full-time jobs in an area unrelated to accounting or finance.
- Professionals with many clients and little focus: They have good resumes, but you need them more than they need you. Did you know that the American tax code changes on average once per day? These preparers complete your return based on outdated rules and then let you deal with the fallout later.
Find a Legitimate Tax Preparer
Before you file your taxes this spring, do your homework. The few minutes you put into finding a good preparer now may save you harsh penalties later.
- Get recommendations from satisfied friends and family members.
- Look for long-term, positive reviews from consumer groups and financial professionals. You want to work with someone who can come to your defense years after filing your return.
- Favor businesses charging flat fees instead of a portion of the refund.
- Ask about credentials, continuing education and ethics. You need someone who understands the changing tax laws and how they apply to your situation. Keep in mind that only certain people, including CPAs, tax attorneys and enrolled agents, can represent you during an IRS audit.
- Ask questions about anything you do not understand. Don't be scared to check the preparer's work.
- Never sign a blank form.
- Always review your completed tax return before signing it. Ask for the preparer's signature and Preparer Tax Identification Number.
- License: Creative Commons image source
About the author: Mary Sutton is a Senior Writer for Fertile Content and a frequent guest contributor to many blogs