Questions to ask before choosing a tax prep service

Tax preparation services are an alternative to using tax software or doing your taxes yourself on a printed 1040 form. Generally, those who use tax preparation services are willing to pay someone about $190 for the luxury of not preparing their taxes themselves, or want to file early and receive their refunds quickly in the form of refund anticipation loans (RALs).

Experts advise keeping the following in mind when using a tax preparation service:

  • Never use a firm that sets your fee as a percentage of your refund. This is illegal and unethical, and gives the preparer the incentive to commit fraud. The cost of your return should be based on its complexity, not the amount you expect to have refunded.
  • Find out how the fee is determined, and get an estimate of what it will be. Do this before you decide to use a particular tax preparation service.
  • Ask how much training and experience your tax preparer has. If you're not confident in him or her, ask to have a supervisor look over your tax return before you leave.
  • Take out a RAL only as a very last resort. If you absolutely must have your refund immediately -- for example, you're about to be evicted from your home -- you could have no choice but to opt for a RAL. But if you have no particular need for the money, you're better off waiting for your government refund rather than paying extra for fees and interest on a loan. With e-filing and direct deposit, most taxpayers receive their refunds in 10 to 21 days without resorting to a RAL.
  • Don't pay extra for a refund anticipation check (RAC), an assisted refund, or an electronic refund check (ERC) or deposit (ERD). Unless you don't have a bank account and don't want one, you don't need one of these products.
  • Don't pay extra for audit insurance. Most chains have a paid option that supposedly entitles you to an increased level of representation or restitution if you're audited by the IRS. Experts say these paid plans don't offer anything useful on top of a firm's core guarantee.
  • Don't feel pressured to sign up for services you don't need. Firms such as H&R Block and Jackson Hewitt make a lot of their money by offering banking services, usually for high fees. If you just want to have your taxes done, don't be talked into high-cost IRAs, loans or savings accounts.
  • Look over your return carefully. If there's a major error in your tax return, you're the one who's on the hook, not your tax preparer. If you see large oversights or inaccuracies, demand to have your return redone for free by another preparer or a supervisor at the same chain.

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