How Do Tax Preparation Companies Work?
May 31 2019
Stop us if you’ve heard this one. “There are only two certainties in life: death and taxes.” Of course you’ve heard it! Everyone has. The persistent reality of filing your taxes year in and year out for your entire adult, income-earning life can be a deflating thought at best. And at worst, a nearly unbearable one. That’s why we’re here to talk tax preparation companies.
Yet, just as surely as the seasons pass and the Sun rises in the morning, so does tax season return each and every spring. And you’re back at your desk or kitchen table rubbing your temples while doing your taxes at midnight.
Just about every taxpayer has been in that situation. So, many thousands of tax filing Americans look for alternatives when Tax Day begins approaching. And that means paying for tax filing software or contacting a tax preparation company.
The promise of a tax preparation company is fairly simple: They’ll do your taxes so you don’t have to.
But that’s about as much as most people know about tax prep services! A lot of first-time users of tax preparation companies don’t know exactly what they do. Well, beyond “doing your taxes.”
Common Questions about Tax Preparation Services
As a tax preparation company, we thought we should clear that mystery up once and for all. We’re here to answer some of the most common questions we’re asked over the phone or email.
How Do Tax Preparation Companies Work?
Most tax companies prepare and file individual and corporate tax returns on behalf of their clients. But they also may provide other services, as well.
For example, our team at Edge Financial performs other tax-related services. We handle audit defenses and liability defenses, as well as bookkeeping and payroll services. However, some smaller tax preparation services may only handle tax preparation and audit defenses. Or they may only handle either personal or businesses taxes—but not both.
When it comes to tax preparation, though, the process most companies will use is fairly universal. When you hire a tax prep service, you’ll generally need to provide them with all tax documentation and records. They’ll search for all applicable tax credits and tax deductions. Then they will file your return with the IRS and your state.
How Expensive Are Tax Preparation Services?
This is probably the biggest differentiator between the services and tax prep companies on the market.
At the low end of the scale, you have well known services like H&R Block. Often, these less-specialized tax preparation companies will start anywhere between $40-60 for a plain and simple filing and go up from there based on other add-ons.
At the high-end, you have specialized CPAs and other companies who may focus on high-income individuals who have the most complex tax returns of anyone. But that luxury market will carry a luxury price tag, and can cost thousands of dollars.
Do Tax Prep Services Need My Private Information?
In this day and age, financial privacy is a big concern.
If you think you’re going to be able to get around providing some basic personal information to your tax preparation company, you’re probably going to end up disappointed. The tax filing process is inherently a personal one, and anyone filing on your behalf will need some of your basic financial info—but they should also protect it, as well.
Can I Still Be Audited with a Tax Preparation Service?
There is always a risk you’ll be audited by the IRS, and that risk isn’t removed just because you’re hiring a tax prep company.
However, you might be surprised how many audits are triggered simply because people fail to double-check their tax returns. So, one of the benefits of enlisting a tax preparation service is that it’s literally our job to file a thorough, error-free tax return.
Even if there’s still a very small chance you’ll be audited when working with a tax preparation company, not every service guarantees to walk you through the audit process should it come up.
How Do I Pick the Right Tax Prep Service?
Selecting the right tax preparation company is worth your time and attention.
A company’s reputation is important, as is their appropriateness for your tax situation. Some companies like H&R Block are intended for incredibly simple returns—and can actually become very costly when your tax return requires more attention to detail.
Based on your income and the complexity of your finances, a mid-range company that offers a full suite of tax-related services may be the best fit. Remember, your goal isn’t just an error-free return, but instead, a long-term relationship with a tax preparer who is familiar with tax law and helps make it work for you.
We’ve also written about how to spot red flags for tax preparation companies, so we recommend checking this article out next!
Choosing Top Rated Tax Preparation Companies
Now that you have the answers you need to the most common questions about tax preparation companies, you can hopefully choose yours with confidence. Do your research, ask tough questions, and we know you’ll find the right fit.
And if your search takes you our way, that’s all the better. We’d love help.
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