Do You Trust Your Tax Preparer?

First

I had gotten married the prior year, and my spouse moved from another state and had income from multiple sources, along with certain possible deductions/credits. I decided to pay a tax preparer to manage it.

He was cheap. We gave him all the paperwork we could think of.

Later, the IRS contacted us about errors in our forms, and pointed out we owed them money. Suddenly I had to pay the tax due, along with a fine.

The tax preparer went AWOL. Did not respond to my calls and emails. I had to fix this on my own. I went through the tax forms, and indeed he had made the error that the IRS caught.

But not only that, he failed to take deductions we clearly qualified for. I filed an amendment, with the errors fixed as well as the deductions, and the upshot was more money from the IRS.

What did I pay this guy for?

Second

I got involved in a minor side business that had a loss in the first year. I didn’t know how to handle taxes for this side business. A well known accountant in the industry referred me to a tax preparer.

He was expensive. At least 50% more than the typical tax preparer.

He fills out the forms and sends them to me for review.

I quickly find a serious error: He’s trying to apply the business loss to my W-2 income. I know enough of the tax code in the industry my business was in to know that was a no-no unless I satisfied certain conditions. I didn’t.

The tax preparer apologized, and instead set it up so the loss could be carried over to the next year.

What did I pay this guy for?

Third

The following year, I needed to apply that carryover loss to my side business’s income. I didn’t know how to do it, so I found yet another tax preparer. I spoke to him on the phone and described the situation. I sent him all the paperwork.

He sent me the forms he filled out.

He completely ignored the carryover loss.

I emailed him. He apologized and proceeded to fill out the forms properly.

This time the forms showed the carryover loss from the prior year, but I confirmed that the final tax due did not incorporate that loss - I was being taxed on the full income from the business.

I asked him why. “That’s how the tax code is,” There were several back and forth emails, but he wouldn’t budge. Finally I went to him in person and said “So give me a scenario where that business loss will have any tax implications.”

He said he’d look into it.

A few days later, he sends me the updated forms, and lets me know that I was right and deducts those losses from the business income.

What did I pay this guy for?

Epilogue

It’s not rare for me to have a discussion with a friend/colleague about taxes, and they will assert some falsehood about the tax code. When I try to point it out, they loudly proclaim “Look, my tax preparer told me this!”

Dude, I don’t trust your tax preparer. You shouldn’t either. Thus far I’ve experienced a 100% failure rate with them.

If your financial situation is straightforward (regular W-2 income, etc), learn to do it yourself. [1] You can always plug the numbers into some online tax service and see if they give you the same numbers as yours. If they claim a significantly better refund, pay them and see how their forms differed from yours. That’s how I learned about certain deductions.

If your tax situation is more complicated, invest the time to learn about the tax implications, so you can catch your CPA’s errors. That’s an unfortunate aspect of life in the US.

Footnotes