How Well Do You Know Your Tax Preparer? Part 1

How Well Do You Know Your Tax Preparer? Part 1
by Gladson I. Nwanna, Ph.D.

As tax time approaches, millions of taxpayers are gearing up for that annual trip to their tax preparer to file their 2006 tax returns. Most will embark on this process as part of their civic duty. Although it is not clear how many will do it with the same enthusiasm that they do other things in their lives it is clear that the approach will reflect on their previous experiences with the IRS, their tax preparers and with their income taxes in general.
It is unfortunate that many tax payers recognize and treat the process as an annual event instead of an ongoing, year-long process that ought to be incorporated into their overall financial planning strategy. In other words, many taxpayers fail to recognize the importance of tax planning, tax preparation and tax filing. They fail to recognize the time and effort that ought to be invested in every phase. One of those phases, is one that I plan to explore in this article and one that has to do with tax preparers.
In this piece, I am tempted to ask the question: How well do you know your tax preparer? I am not asking about their personal lives, not that it may not be a fair question; I am referring to their professional capabilities. This is important because, whether you previously considered it or not, your tax preparer is part of your financial planning team. If you did not view them as such, maybe you should begin now to consider them. After all, he or she is privileged to a substantial portion of your financial information. You may have to call on your tax preparer sooner or later in regard to your taxes, tax papers and tax filings or in the event you are audited by the IRS.
Many tax payers tend to forget about these facts until it is too late. Tax preparation these days, particularly since the advent of the computer and the Internet, has taken a different form and many taxpayers have embraced it in a manner that, in my opinion, may not always serve their long term interest, particularly in the event of a problem with tax authorities. Today, we all bare testimony to the proliferation of tax filing and tax preparation places. All that is required is a computer, a rudimentary knowledge of computer usage, tax software, a small office space and you are in business, accessing financial information and preparing taxes for hundreds of taxpayers who sincerely believe you know better than them. Granted many tax preparers will swear they know what they are doing, the reality is that many who claim they do, do not and many others are downright incompetent when it comes to the underlying core knowledge of accounting and taxation and the rules governing deductibility and taxation of certain incomes. The result of this incompetence is millions of dollars lost to taxpayers who are denied the opportunity to reduce their taxes and maximize their refunds.
At a minimum, a tax preparer should be knowledgeable in accounting and finance. I am not suggesting that such persons should have a degree in these fields even though that would help. Additional experience in the area of taxation would also be an advantage. Unfortunately that does not seem to be the case these days. A short course with any one of the major national tax preparation firms seems to be the route with many tax preparers and somehow that is supposed to be adequate. My question to you is, for the money you pay and the information you place in the hands of these tax preparers, can you do better? I believe you could do better.
Taxes in general and the responsibilities placed on us as citizens regarding our tax obligations are enormous. So are the consequences when those responsibilities are not carried out properly. Most obvious of these consequences is an entanglement with the taxing authorities. Unfortunately, none of us are immune. We must do everything possible to minimize those things that could bring us in contact with the IRS.
Avoiding tax problems and the IRS starts with the quality of financial information we provide and revolves around the tax returns we file with the IRS. At the micro level, it revolves around information regarding the number of exemptions we claim, the tax credits we claim, the deductions or expenses we claim and the incomes we declare or fail to declare. In the final analysis, it comes down to how much tax we have to payback or refunds we receive or hope to receive.
[Continued in next week's Picket News.]