Tax Preparation Services: The Ultimate Guide

You know the feeling. While the clock is ticking toward half-past-who-knows-when, you’re staring at a stack of tax forms and receipts as your computer dares you to quit. But quitting is not an option when it’s officially Tax Day. Right about then is the moment you wish you hadn’t decided to do your taxes this year. Right about then is when you start to regret not looking into any tax preparation services.

We can’t blame you. And trust us, you’re not alone. Each year, thousands and thousands of your fellow taxpayers choose to outsource their tax prep to a professional, for a host of reasons. Maybe that fed up taxpayer is you. On the other hand, maybe you’re not sure, and you’re just looking for a little bit of information about them. Either way, we’ve got you.

Tax preparation services can be hugely helpful to individuals and businesses alike, but you need real information about tax preparation before you get started.

As a full service tax representation firm, we’ve been in business since 2001. We file over 1000 tax returns each month, and we’ve helped tens of thousands of clients manage their relationships with the IRS and all things tax. Time and time again, we find the biggest issue our clients have is a lack of information about their taxes, which has cost them time, money, and even landed them with an audit.

You deserve to have real information—without the frosted sugarcoating—so you can make the right choice for your own financial situation. So we’re going to walk you through the ABCs (and XYZs) of tax prep.

Ready? Then let’s go.

What is tax preparation, really?

In the simplest of terms, tax preparation is preparing your taxes. Groundbreaking definition, we know.

If you’re a DIY tax filer, you’ve prepared your taxes since the first time you had to file them! The tax filing process includes everything from filling out your income on your tax return to inputting your deductions and attaching receipts. To clarify, tax preparation refers to the tax return filing process.

However, for the purposes of this article (and your future Googling), “tax preparation” refers to somebody else performing the tax filing process on your behalf. And it doesn’t really matter who you hire, whether it’s a CPA or us or a company like Jackson Hewitt.

Tax Preparation: A tax preparer does your taxes for you.

So, when you look for tax preparation, you’ll specifically look for professionals and companies that handle the tax filing process, usually from start to finish.

Just like everyone has their own reason for buying a car, everyone has their own reason for hiring a tax prep firm. Fortunately, tax preparers come in handy in a lot of circumstances. Here are a few you might find yourself in, as well.

1. You hate doing your taxes.

Why bury the lede here? Above all, most people hate doing taxes and think tax season absolutely sucks. We may be tax nerds at Edge Financial, but we recognize we’re in the minority of people who feel that way.

Unless you’re a tax nerd, filing your taxes is usually a dull process at best, and a migraine-in-the-making at worst. The #1 reason people hire tax preparation firms is simply that they’ve experienced one too many late nights, lost W-2s, or audits for one lifetime.

2. You have a complex financial situation.

Taxes vary widely in terms of complexity. For example, a single person with one full-time income stream and student loans? Simple. A married couple working three jobs in total, who also have multiple IRAs, a 401k, and two investment properties? That’s more complex.

As the complexity of your financial situation grows, so will the complexity of your taxes. As a result, more complex tax returns often require an expert’s eye not only to ensure you’re getting the most savings—but to ensure you’re not making any glaring mistakes.

3. You’re too busy.

In general, we’re of the mind that most people tend to overestimate how much time it takes to do their taxes. But time is relative. While to some, a four-hour baseball game may feel like it flies by, the same four hours spent filing taxes might feel like a lifetime.

The world tends to move at a lightning pace, and our lives are busy—especially during tax season. Work, school, family, and life don’t always leave room for taxes. So, tax preparation can be the perfect solution.

4. You own a business.

If you were comparing the simplest individual tax return against the simplest business tax return, you know which one would be more complicated? That’s right, the business return. Between costs, labor, revenue, real estate, and everything in between, owning a business is, well, serious business.

Therefore, errors on your business taxes can have potentially massive consequences on the future of your business, which is why it’s rarely recommended to do them yourself. So, that’s why many businesses that don’t have internal accounting teams often outsource their taxes (and bookkeeping, for that matter).

How Tax Preparation Services Work

With some variations depending on the type of tax preparer you’ve hired and how complex your taxes are, most tax preparation services work in roughly the same way.

1. Firstly, you’ll discuss your finances with them. This will give them a sense of the overall shape of your tax return (whether you’re filing jointly, have dependents, have student loans, etc). After that, your tax preparer may provide you with a list of documents they’ll need to get the ball rolling.

2. Secondly, you’ll send digital or paper copies of your tax forms as necessary.

3. Of course, your tax preparer will reach out to ask questions or get clarification as needed. So, they’ll schedule a second call to go over outstanding questions or additional documents they may need.

4. Eventually, once your tax prep firm has all the documents and accurate information they need, they will complete your taxes and typically send to you for a review—or for confirmation.

5. Finally, the tax preparer files your taxes on your behalf. If you haven’t paid up front, you’ll likely pay now.

Types of Tax Preparers

While the general shape of the tax prep process is similar regardless of whom you hire, there are multiple types of tax preparers out there. And they aren’t all created equally. No tier is right for everyone, and it’s important to understand which kind of tax prep solution may work best for you.

National Tax Preparation Services

CPAs and Low Income Outfits

Boutique and Mid-Tier

CPAs and High Income Firms

Pros and Cons of Using Tax Preparation Services

Just like there are many positives to hiring a tax prep service, there can also be drawbacks. Here are a few things you should consider on both sides of the equation.

Pros

1. Greater Tax Expertise

Most taxpayers aren’t tax experts. They may file their taxes every year, but they rarely know how to get every tax credit they qualify for and maximize their tax refund.

The U.S. tax code is immense, and unless you’re a CPA or tax attorney, there’s a good chance you probably know about 1-2% of what’s in there. When you hire a tax professional or a tax team to prepare your taxes, you’re gaining access to their expertise and their intimate knowledge of national and state tax codes. A good tax preparation service will be able to apply their expertise to your tax situation and squeeze every last cent out of it—right into your refund.

2. More Time & Less Stress

Most people don’t have their refund on the brain when they decide to hire a tax prep firm—they have the memory of the headaches that came with filing their tax return the year prior. And when you hire a tax preparation firm, that kind of relief is something that comes baked in.

When you outsource the tax preparation process to a pro you trust, you’re getting two types of your time back. Initially, you give yourself back the time that it takes to physically do your taxes, which varies from person to person, but usually takes at least a few hours for most people. Additionally, you give yourself back the time you would have spent worrying about your taxes, which seems to wind up throughout tax season. All this time can be put where it belongs: at work, with your family, and asleep.

Cons

1. Cost

The tax refund is a magical thing, and for some, it’s the best part of tax season. It’s a nice reward for a job done well. So, most people think about taxes in a binary: You owe money to the IRS, or the IRS owes you. It’s this binary that can make the cost of tax preparation a negative to the whole experience.

We can’t blame anyone for that mindset! Obviously, it’s exactly that mindset that drives us to get our clients the best possible tax refund they qualify for. But for many, paying the IRS then paying more to somebody who isn’t the IRS—or getting money from the IRS then paying a portion of that money to somebody else—just doesn’t calculate. Subsequently, it can lead folks to opt for DIY preparation or for cheaper national chains that are usually less equipped for complex tax returns and specific local tax laws.

2. Paperwork

One of the greatest annoyances for most taxpayers when it comes time to file is dealing with the paperwork. Depending on your financial situation, you may have multiple tax forms for bank accounts, investment accounts, mortgage payments, student loans, donations, receipts, and other deductions—on top of your W-2s or 1099s. Unfortunately, acquiring and organizing this paperwork isn’t off your plate when you hire a tax prep company.

In order to do our jobs, we still need a clear picture of your financial documents, and there’s no other way we can get them for you to provide. For example, tax preparers may need to speak with you over the phone or email to get additional clarity as they file your taxes. While you do get much of your time back, there is some work you’ll have to do to help your tax preparer do their job. Certainly, that realization is kind of a dealbreaker for some people.

Questions You Must Ask a Tax Prep Service

1. What is your PTIN?

Every tax preparer has a PTIN, or Preparer Tax Identification Number. So anyone who prepares or assists in preparing federal tax returns (for money) must have one of these numbers, which is registered and listed with the IRS. So, you should be able to ask which other professional qualifications they have, like being a CPA or a tax attorney. However, the IRS provides you a directory to find out if they’re as qualified as they claim to be, and it lets them know you do your research.

You can visit the Tax Return Preparer Directory on the IRS’s website.

2. What guarantees do you provide should my return be audited?

Honestly, no tax preparer can really guarantee you won’t be audited if you hire them. However, they can guarantee they’ll stand by you in the event of an audit. In short, that’s really what counts.

At the end of the day, your tax return is your tax return, and you’re ultimately responsible for any consequences of underpayment or mistakes. However, if a tax preparation company guarantees that they’ll work with the IRS to resolve your tax audit in the unlikely event one occurs, that’s a heck of a lot better than a company who plans to leave you out in the cold.

3. How is your payment structured?

There are a few ways you may be asked to pay a tax preparation company. But, there are also a couple payment structures that you should note as red flags:

• First off, if someone promises you a bigger tax refund without knowing your tax situation, it could indicate that they might inflate your tax deductions and credits, take your payment, and then leave you with an audit.
• Additionally, if someone asks you to sign a blank or unfinished tax return and is unclear about payment, they can write or do anything they want with it. Therefore, they may attempt to steal your identity or take your tax refund and run.
• Further, if someone plans to deposit your tax return into their bank account, they may plan to take your tax refund and run.
• Last, if they refuse to sign their name, it could suggest they want to stay anonymous so the IRS can’t trace them if they commit fraud.

Payment is one good way of spotting potential tax fraud, but it’s not the only one. So, check out this video from the IRS about the importance of choosing a tax preparer wisely.

Tax Preparation FAQs

1. Is tax preparation expensive?

Tax preparation costs money, no matter who you hire. Unlike tax preparation software like TurboTax, tax preparation services are offering expert guidance, advice, and knowledge of your national, state, and local tax laws. However, the level of expertise regarding your specific tax situation—and the willingness of your tax preparer to fight for every last penny in your refund—will make the difference. Tax preparation can range anywhere from $40 up to thousands of dollars.

2. How much does tax preparation cost?

We’ve touched on this question before, but tax preparation companies range in price. At the low end, you have popular, nationwide outfits like H&R Block as well as small CPA businesses that work on volume. And they usually only handle simple returns, but they’re also the cheapest, typically starting at $50 and upcharging from there if your taxes are more complex.

The next highest prices are for mid-range firms like Edge Financial. To clarify, we handle everything from simple returns to very complex business returns, and we provide much more personalized care.

At the highest price point, you have CPAs and professionals who cater exclusively to high earners with complex tax returns. These tax preparers are often also personal accountants, and they may cost anywhere from a thousand dollars for tax filing up to a monthly retainer in the tens of thousands.

3. Can I get audited when using tax preparation services?

The short answer here is no. No tax preparation service can guarantee your tax return will not be audited. However, that doesn’t mean your tax preparer necessarily made any errors at all! While, yes, most audits are often triggered by simple errors, like forgetting to sign your form, miscalculating a total, or neglecting to attach a necessary receipt, others are triggered by things out of your hands entirely.

In most cases, audits are triggered automatically by computer programs at the IRS that search for abnormalities—ways in which a tax return seems unusual compared to other, similar tax returns. Therefore, that algorithm may flag a tax return for auditing because it claimed $40,000 in deductions, which would be unusual for an income of only $50,000. But perhaps, that tax return was just completed at half past midnight and an extra zero snuck into that “$40,000” figure. While the return may have been audited, it’s easy to clear up. You may also be audited if you did business with somebody else whose return was audited.

Because computers trigger most audits (and audits are still very uncommon), some part of the auditing process is out of your hands. So, it’s important to focus on two things: Filing an error-free, honest tax return; and choosing a tax prep company who will stand by you should your return be audited.

4. When do I need to contact a tax prep service to file my return by the tax deadline?

Of course, many of the services that we perform as a tax representation firm are year-round: Audits, tax debt relief, bookkeeping, and payroll (to name a few). But tax season comes but once a year.

Have you ever been to the store to pick up a last minute gift or card on Christmas Eve? Maybe tried to score a reservation at an upscale restaurant the morning of Valentine’s Day? Well, tax preparation is sort of similar that way. Likewise, the longer you procrastinate, the more of a bind you’ll be in when it’s finally time to get help from a pro.

Tax season is just that—a season. Consequently, starting the tax filing process early carries benefits not only when preparing your own taxes, but also when enlisting someone else to prepare them for you. Sadly, when you wait until the last minute and begin reaching out to tax preparation services during their busiest few weeks (or months!) of the year, you may find yourself with fewer options and busier schedules. Instead, do yourself a favor and give your tax preparer—and yourself—a head start of at least a month or a month and a half.

Tax Preparation Services: You’ve got this. And we’ve got you.

Paying taxes is one of the certainties of life. But when it comes to choosing tax preparation services, we hope you also view it as a financial opportunity. Picking the right tax preparer—one who is trustworthy, makes sense for your tax return, and can get you the tax refund you deserve—is a decision that will carry benefits, potentially for years to come.

Generally, information is always your greatest ally in all things tax. But, you’ve already started your research here! Take what you’ve learned with you, and begin your hunt for a tax preparation service that fits you just right. The first time working with a tax preparer is going to be different than what you’re used to, but trust us: Once you give tax preparation a try, you’re never going to look back.

Still have questions about tax preparation services, the tax preparation process, and what to expect? We’re ready to help. Call us today at 1-800-410-8605 or send us a message here.