How to choose the right tax preparer


Q. What’s the best way to choose a tax preparer? Do I need a CPA or a tax attorney or one of those other designations like an enrolled agent? What’s the difference?
— Taxpayer

A. It’s a great question, and there are significant differences among tax professionals.

There are typically four types of professionals that may prepare tax returns on behalf of a taxpayer: attorneys, certified public accountants (CPAs), enrolled agents (EAs) and registered tax return preparers, said Adam Sandler, an attorney with Einhorn Harris in Denville.

These professionals vary widely in terms of education, skill, oversight and regulation.

Attorneys are licensed to practice law in a particular state by that state’s bar, Sandler said.

“As part of their training, attorneys must earn an undergraduate degree and a law school degree, pass a bar exam – historically a two-part exam – pass an ethics exam, and meet rigorous character and fitness requirements,” Sandler said. “More often than not, attorneys that specialize in tax have also earned an additional master’s degree in tax law (LL.M. in Taxation).”

Attorneys are required to complete annual continuing education in accordance with state bar guidelines to maintain their license, he said.

Then there are CPAs that are licensed by a state’s board of accountancy.

“They have generally earned an undergraduate degree in accounting or business, passed a four-part CPA exam, and met experience and moral character requirements,” Sandler said. “Like attorneys, CPAs are required to complete annual continuing education in accordance with state guidelines to maintain their license.”

Also like the practice of law, accountancy is a very broad field and only certain CPAs choose to concentrate their practice in tax, Sandler said.

EAs are individuals licensed by the IRS to prepare returns.

There is no formal education requirement, but EAs must either pass a three-part test administered by the IRS or have sufficient experience as an IRS employee, Sandler said. They are subject to a background check and must complete annual continuing education to maintain their EA status.

And finally, registered tax return preparers are individuals who have applied for an IRS Preparer Tax Identification Number (PTIN).

Sandler said the IRS does not require any level of education, examination or continuing education to obtain and maintain a PTIN. Applicants are subjected to a limited background check, which includes their criminal and taxpayer history.

Now, how do you choose?

Sandler said choosing the appropriate tax return preparer largely depends on the type and complexity of tax return.

“For example, a single taxpayer with no dependents and a straightforward tax return will not require the same level of services as a married taxpayer with two children who is a business owner, has real estate interests and earns income from international sources,” he said. “Taxpayers should assess their situation and choose the appropriate preparer with the requisite experience and knowledge that meets their needs.”

Also keep in mind that while tax attorneys are eligible preparers, they generally serve as a source of expertise and counsel on complex returns, such as returns for partnerships, fiduciaries, and high-net worth individuals – transactions that raise tax considerations and tax planning, Sandler said.

Despite the attorney’s role as an advisor and expert, he recommends you retain specially-trained trusts and estates attorneys to prepare federal estate and gift tax returns, as well as any state level estate or inheritance tax returns, given their highly unique nature.

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