The Internal Revenue Service recently announced it will begin processing individual income tax returns on Jan. 28 and issue tax refunds as planned. As you prepare to file taxes, consider the following tips to protect your identity and score the lowest tax bill this year.
Guard your personal information. Identity theft is one of the fastest-growing crimes in the world and tax time is prime time for identity thieves. The information on your tax return — legal name, birthdate, Social Security number and other personal information — is exactly what the bad guys want, so be careful about disclosing your data.
[See: 15 Tax Questions — Answered.]
Definitely keep data security in mind when you see one of those omnipresent offers for free tax preparation. Ask yourself why that credit website, big-box retailer or local nonprofit is working for free. Who are these people and what are they doing with your data? What security procedures do they have in place? Is it worth saving a few bucks to put your data at risk?
While many taxpayers choose to go it alone, about 60 percent of individual tax returns were e-filed by tax professionals in 2018, according to data from the IRS. So when paying for tax preparation services, ask questions as well. Verify credentials and find someone who has the skills and experience that best match your current situation. The industry isn’t regulated, so don’t make assumptions about the guy behind the tax desk. The only requirement to become a paid tax preparer is to order a PTIN — a preparer tax identification number — and those are free. Note that a handful of states have their own regulations for tax preparers.
[See: 10 Smart Ways to Spend Your Tax Refund.]
Currently there are 782,552 active PTIN holders, according to the IRS. Only about one-third have professional credentials. It doesn’t necessarily mean the other two-thirds don’t know what they’re doing, but they have not demonstrated any tax competency to federal or state regulators. They have not passed a background check and are not bound by any ethical or continuing education requirements.
The tax credentials to look for are enrolled agent, commonly shorted to EA, certified public accountant, commonly called a CPA, and attorney.
The enrolled agent credential is the most expensive license granted to a tax professional by the Treasury Department. To become an EA, applicants must pass a comprehensive three-part exam that covers individual tax returns, business tax returns and representation before the IRS. EAs must have a PTIN, pass a tax compliance check and complete a minimum of 72 hours of continuing education in taxation every three years. EAs generally have unlimited representation rights before the IRS. Taxpayers can find one through the National Association of Enrolled Agents.
Certified public accountants and attorneys may also prepare income tax returns if they have a PTIN. They are licensed by their individual state boards and adhere to those standards and practices. Their specialized training and continuing education may or may not be in the field of taxation. Many specialize in tax, but others do not.
The IRS also has an annual filing season program, or AFSP. As the name indicates, this program is good for one year only. A tax preparer can participate in this program by ordering a PTIN, taking 18 hours of continuing education and passing a 100-question quiz. While even the IRS won’t call this a credential, it does recognize the efforts of unlicensed tax preparers to at least stay up-to-date on what’s going on in tax world.
Folks who volunteer to help low-income or elderly tax filers through the Volunteer Income Tax Assistance program, or VITA, must pass an IRS-administered competency test before volunteering.
You can check the credentials of your tax preparer using IRS directory of credentialed tax preparers.
[See: 9 Times to Talk to a Financial Advisor.]
Finally here are four signs you may need to find a new tax preparer.
The refund is unbelievably good. Beware of a new preparer who generates a refund that sounds too good to be true. Although tax reform is a big deal, if your situation doesn’t change much from year-to-year, your refund or balance due generally shouldn’t change much either.
He won’t sign his name on your return. While you are ultimately responsible for what’s on your tax return and sign under penalty of perjury, paid preparers are required to sign the return as well. Anyone unwilling to sign his name on his work isn’t to be trusted.
The tax preparer is hard to find during the year. Legitimate preparers are available year-round. If your preparer’s “office” is completely portable, and he’s using unsecured free public Wi-Fi, you (and your personal information) could be in trouble.
He asks for a portion of your tax refund. Paid preparers are not to accept any part of tax your refund. Under no circumstances should all or part of it be directly deposited into a preparer’s bank account. If someone offers this service, run screaming from the room.
More from U.S. News
8 Ways You Can Prepare Now for Next Year’s Taxes
10 Big Ways to Boost Your Budget — Without Skimping on Your Daily Latte
14 Money Moves You Will Be Thankful For
How To Choose the Right Tax Professional originally appeared on usnews.com
