What is a Tax Preparer and What Do They Do?

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Paying taxes is something people around the world have to deal with, people who tried doing tax on their own would probably figure out that it can get quite complex at times. There are about 7.7 million words of tax regulations making up the United States tax code.

For businesses that have more regulations and compliance laws put upon them than the average individual, filing taxes can feel like navigating a maze. In 2016 alone, Americans spent 8.9 billion hours working on their taxes.

As your business grows dealing with taxes can be a headache. However, you might be reluctant to spend money on a professional. After all, what is a tax preparer? Are they really worth the money?

Check out this guide to tax preparation to find out more.

What Is a Tax Preparer?

Essentially, a tax preparer is any individual certified to prepare federal tax returns for individuals or businesses. The level of qualification varies by individual.

Ultimately, a tax preparer must have an IRS Preparer Tax Identification Number (PTIN) to be authorized in this role. This industry is heavily regulated, and tax preparers must regularly update their business license. This is because the tax code is constantly changing, and the IRS requires tax preparers to take regular exams to update their knowledge.

When choosing a tax preparer, it's important to consider their education, training, and professional business references as well.

What Does a Tax Preparer Do?

If you've filed your own taxes, you will already know a tax preparer has a difficult job. It first begins with interviewing clients to decide which tax forms work best. This is where the client will share private income details and even tax returns from previous years.

Next, the tax preparer will collect financial documents from the client, including W-2s, expense records, receipts, Social Security numbers, and other paperwork.

Then, the tax preparer will likely use software to help them complete tax forms specific to the client's situation. This is when the tax expert determines what credits and deductions will save the client the most money.

Finally, they will file the income tax returns. This is usually done electronically as it is a more efficient method. This method requires the client to have last year's AGI and PIN. It's also possible to do by mail, which only requires the client's signature.

Types of Tax Preparers

Different clients have different needs, thus there are different types of tax preparers. They are separated into two categories: unlimited representation rights and limited representation rights.

Unlimited representation tax preparers can represent any tax matters, including audits, collections, and appeals. This category includes enrolled agents, certified public accountants, and attorneys.

Limited representation tax preparers can only help clients whose returns they've personally prepared. They cannot deal with appeals or collections. This includes Annual Filing Season Program Participants and PTIN holders without professional credentials.

Help With Taxes

What is a tax preparer? They are a tax expert professionally qualified to help you with one of the most difficult aspects of owning a business. While the initial cost of hiring a tax professional seems unappealing, they are better equipped to save you time and money.

How much is your time worth? Contact us for a free consultation.