Every year, I bring my documents to my accountant and he prepares my taxes. This year, he told me there has been an increase in the number of people that bring their returns to professional tax preparers. The IRS reports that around 60 percent of taxpayers turn to professionals when preparing and filing their returns.
While my accountant is reputable, the reality is that not all tax preparers are completely above-board. If you aren’t careful, you could find yourself hit with IRS penalties for underpayment or scammed outright. You might even have your identity stolen.
Here are 4 signs that your tax preparer might be on the shady side:
1. No PTIN
You can let anyone prepare your taxes. However, you do need to be careful if you are looking for a true tax professional. Not too long ago, the IRS implemented the requirement for preparers to apply for a PTIN. This number identifies preparers.
If your tax preparer doesn’t have a PTIN or isn’t willing to sign your return with his or her PTIN, that’s a major red flag.
2. Asks You to Sign an Incomplete Return
Before you sign your tax return, make sure that it’s complete. If your preparer claims that he or she will “finish it later” or comes up with some other reason to leave some places blank, you could be in trouble. When you sign, you accept responsibility for the return. You don’t want blanks in anything official that you sign.
3. Encourages You to Fudge Your Numbers
Watch out for tax preparers that encourage you to fudge your numbers. Those that ask you to report a slightly lower income, or claim higher deductions or tax credits that you aren’t strictly entitled to, you could be dealing with a shady preparer who is trying to impress you (or scam you) by dangling a bigger refund. Realize that you need to be honest about your income and tax breaks, or you could find yourself hunted down by the IRS, and charged fees and penalties on top of back taxes.
4. Charges a Percentage of the Refund
Most reputable tax preparers charge a flat fee for their services. You might be charged a flat rate for your federal filing, and a rate for your state tax return. You might also be charged more if there are more forms to file along with your return. This isn’t a bad thing. It lets you know exactly what you’re getting.
If a preparer offers to accept a percentage of your refund, however, that’s a red flag. This means that the preparer has an incentive to wow you with a large refund. He or she might claim deductions and credits you aren’t entitled to, or report a lower income. In some cases, a shady tax preparer might claim that the government is offering grants through tax filings, and you can get them. The preparer shows you an impressive refund and then charges you a percentage, usually 10 percent. You pay and the preparer disappears. You are stuck with the penalties for underpayment — or even bigger penalties for failing to fail if the preparer didn’t even bother to take care of that step.
It’s important to understand that charging a percentage of the refund is not up to industry standards. Realize, too, that the government doesn’t offer special grants or scholarships via a tax refund.
Anytime you trust someone with your personal information, do your homework and be on the watch for scammers.