If you hate doing your own taxes, you’re certainly not alone. According to the IRS, as reported by the Washington Post, more than 60% of Americans hire tax professionals to fill out those nerve-wracking, headache-inducing, seemingly unending forms.
However, while having someone else do your taxes can take a load off your shoulders, if you don’t choose the right person, you might end up facing even bigger problems. Just as in any industry, there are unscrupulous tax preparers out there looking to make a quick buck – and they can get you into all sorts of hot water by finding less-than-legal ways to boost your refund or take advantage of you.
Familiarize yourself with the most popular tax scams committed by tax preparers below, followed by tips on what to look for when choosing someone to help you prepare your taxes.
Top 3 Tax Scams to Watch Out for
1. Depositing Your Refund in Their Bank Account
Issues with refund-skimming and excessive fees often start with a simple request. If tax preparers offer you an advance on your refund, with the requirement that you allow your refund to be deposited directly into their bank account, this is not a good sign. Alternately, they may tell you that they can take their fee out of your refund – but when it comes time to pay up, suddenly their fees have tripled. To make matters worse, they’re in possession of the refund and you’re not.
How to Protect Yourself
Never allow private tax preparers to deposit your refund in their own bank accounts. Some larger companies issue you a debit card with your refund (although the IRS now does this for you as well, with fewer fees) and some still offer tax refund anticipation loans (RALs). Whatever method you use to get your refund, make sure you get a copy of your tax return where your exact refund is clearly stated. You should also get an invoice or other statement from tax preparers that clearly states their fees – including a range for “difficult” returns, so they can’t claim later that the tripled fee is due to your return being more challenging than originally thought.
2. Identity Theft
The IRS is aware of several identity theft scams where individuals pose as tax preparers in order to obtain people’s financial information. Some even pose as the IRS itself in order to demand information – or, simply, cash. And with the rise of e-filing, more and more people are falling prey to phishing scams, in which someone contacts you claiming to be from the IRS and requesting personal information or money.
The IRS never, ever contacts anyone randomly by email. Representatives always send a letter or call on the phone. If you are concerned about whether a contact from the IRS is genuine, you can call 800-829-1040 to ask whether you were sent any communications.
How to Protect Yourself
Always use a trusted, recommended tax preparer to do your taxes. If someone wants a lot of money up front, claims to need more information than simply what’s on your forms, or doesn’t seem to be a competent professional, it should raise some suspicions.
3. Fraudulently Manipulating Returns for Larger Refunds
One method that iffy tax preparers sometimes use to reel in new clients is to claim that they can get a much larger refund for you than anyone else can. Sometimes, they even offer to work for a percentage of the refund, instead of a flat fee. Unfortunately, the way most of these preparers get you a bigger refund is by adding in charitable deductions you never made, claiming people as dependents who really aren’t, or making other fraudulent changes to your tax return. And in many cases, people who get these enormous refunds are so pleased by their “super accountant” that they refer friends and family members, who then could be liable for tax fraud.
How to Protect Yourself
Always double-check the tax forms your accountant prepares before signing them and turning them in. You’re the one who has to answer if you get audited by the IRS and you could get in serious trouble for fraudulent information.
Tips for Choosing a Tax Preparer
- Investigate Marketing. Be very wary if tax preparers claim they can get a larger refund than their competitors.
- Examine Fees. You should avoid preparers whose fee is a percentage of the refund.
- Review the Return Before It’s Filed. If they refuse to give you a copy of your tax return or allow you to see it before it is filed, that’s a big red flag.
- Review Experience. If something does go wrong, you may need your preparer to help you answer questions or clarify issues months or even years after the return was filed. If they are not around, they won’t be much help.
- Check Their Credentials. Only tax attorneys, certified public accountants (CPAs), and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection, and appeals. Other people may only represent you on an audit of a return that they personally completed for you, which means if you have issues from prior years, they legally can’t help.
- Ask About Professional Affiliations. The best organizations are those that require their members to get continuing education or provide resources, and which hold them to a professional code of ethics. While this can’t screen everyone out, many fly-by-night tax preparers won’t want to pay the money to join.
- Expect Your Tax Preparer to be Thorough. Make sure your preparer asks to see documentation, forms, receipts, and asks a lot of questions. He or she needs to determine whether you qualify for different tax breaks, or how to classify your expenses. It also helps you to avoid penalties later. If the tax preparer has few questions, or none at all, that is a cause for concern.
In addition, don’t forget these important IRS rules:
- You Are Responsible and Liable for the Content of Your Tax Return. Even if someone else fills it out, you’re ultimately responsible for what’s on your return.
- Never Sign a Tax Return Before Checking That It Is Accurate. Once you sign your return, you’re acknowledging that you agree with the contents and you are confident they are correct. If you can’t say those things, you shouldn’t sign it.
This tax season, keep your eyes open and don’t let the promise of a big payoff keep you from doing a thorough check on your tax preparer. We’re all looking for a bigger refund, but we need to do so safely. Be smart and circumspect, and you should have nothing to worry about.
Have you gotten any sales pitches from shady tax preparers? What did you do?