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Certified public accountants and enrolled agents

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This is a continuation of previous post on choosing a tax preparer.

These are the pros to consider when you’re looking for help with a complicated tax return, year-round tax-planning advice, and someone who might be able to help you need to do battle with IRS.  In fact, a CPA or EA can become one of your trusted allies throughout your life.  This pro may turn into the sounding board you need when deciding things such as: Should I get a home equity loan?  Does it make sense to borrow from my 401(k) savings plan?  Would I be better off in a tax-free municipal bond mutual fund or a fund that invests in U.S. Treasury securities?

Certified public accountants who specialize in taxes (not all 400,000 CPAs do) and enrolled agents are similar in many respects.  Both have received rigorous training.  A CPA must pass a state accountancy exam and then take continuing education classes to keep up.  An EA has either worked at the IRS and earned a special license or passed a stiff two-day IRS test.  Both can represent you in front of a storefront preparer, because of their training.  Figure on spending $200 to $1,000:  enrolled agents often charge a little less than tax partners at big-city accounting firms.  Many charge by the hour -$75 and up.  If that’s how yours get paid, do whatever you can to bring your accountant or enrolled agent organized records.  Otherwise you’ll be throwing money away paying the adviser to sort through your receipts and determine which ones are important.

As noted earlier, it’s a good idea to ask friends or business associates for the names of advisers they use.  Since there are only about 30,000 enrolled agents in the country, however, you may not know of anyone using one.  To get names of enrolled agents in your area, call the National Association of Enrolled Agents at 202-822-6232 or write to the group at 1120 Connecticut Avenue, N.W. Suite 460 Washington, D.C. 20036.

Ideally, you want a CPA or EA whose clients have incomes and jobs similar to yours.  For instance, some know small business taxes backward and forward; others don’t.  You also want to find a tax pro who will be just as aggressive about claiming write-offs as you would yourself –no more, no less.  The tax code has many gray areas, particularly when it comes to things such as home offices and business expenses.  Some preparers are willing to take chances and claim iffy deductions, figuring the IRS won’t notice or that they will have a decent chance of defending them in audit.  Others favor a safer letter-of-the-law approach that could cost you more in taxes.  When interviewing prospective tax advisers, find out how aggressive they are and see how you feel about their stances.

Ask, too, who will actually be preparing your return.  At many accounting firms, low-level preparers and even temps make the first run filling out returns.  They then pass their work up to the experienced CPAs, who signs the returns.  There’s nothing necessarily wrong with this approach; you just don’t want to be surprised to find out that the person you thought was your preparer has farmed out your 1040.

Don’t become wholly ignorant about taxes once you hire a tax adviser, however.  The more you know about the tax code, the better the questions you can ask your preparer.  It’s worth picking up an annual tax guide sold in bookstores.  You might also want to subscribe to a tax newsletter written for laymen.  One excellent candidate:  Write-Off, a monthly with smart tax-planning strategies for professionals and small-business owners, edited by James Seidel and Robert Trinz ($119 a year; ProPub Inc., 201-447-6485).

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