Who should prepare your taxes this year?

It is approaching that time when you must ask yourself this question: Do I want to prepare my own tax return this year? I readily confess that, as an enrolled agent, I have a vested interest in tax preparation, but the question still remains. This column may help you make an informed decision regarding next year's filing.

There are four types of tax preparers: CPAs, attorneys, enrolled agents and others. The IRS now requires that all preparers be registered and, for the first time, all preparers who are not CPA's, attorneys or enrolled agents must have demonstrated competence in tax preparation, and that means having passed an IRS examination. In addition, there will be ongoing continuing education requirements.

The result of these changes should be that the public can be reasonably assured that their tax preparer knows what they are doing, since the IRS tracks the returns that are prepared professionally. Incompetent preparers have always been weeded out, but now even more so with the new registration process in place.

As a nation, we spend more than 7.6 billion hours and more than $193 billion in complying with the tax code each year, and those figures are just to ascertain how much we owe. For 2010 tax returns, the IRS recently estimated that the average taxpayer required 23 hours to complete his return, and if a Schedule C (for self-employed income) was required, that needed time went up to 32 hours.

The first question to ask is: Do you have a return that only includes W-2 income and no itemized deductions? If you answered yes, then all a preparer will have to do for you is enter your information on his software and charge you $50 to $100 to pay him for his typing skills. In lieu of that expenditure, you may want to visit www.irs.gov and take advantage of their free file program. It provides fillable forms online and is reasonably user-friendly, and the best part is that it costs nothing, nada, zilch. Plus, you can file your return electronically and speed up your refund.

But let's face facts - our Tax Code is very complicated and because it is so complicated, more than 60 percent of Americans have professionals do their tax returns. Tax law has had major changes in 45 of the past 48 years. Last April, IRS Commissioner Douglas Shulman reported that there had been about 3,500 tax law changes since 2000.

If you do choose to use a professional tax preparer, you should be paying him not only to prepare your 2011 return accurately, but he should also be providing you with advice and direction. A good tax preparer starts by asking a lot of questions. The only way you'll get your money's worth is if the preparer understands how you go about earning a living and then relentlessly pursues every legitimate tax deduction on your behalf.

A good preparer should pay attention not only to those transactions that took place in 2011, but also he should show you how you might be able to reduce the taxes that will come due when your 2012 return is prepared.

As my dear wife is prone to remind me, you get what you pay for. So if you have income from a myriad of sources, are self-employed, have passive income, are unsure about what is deductible and what is not or just are unwilling to spend the time required to prepare your own tax return, it may make sense to hire a professional to help you. My advice is to stick to known quantities such as a CPA, tax attorney or enrolled agent.

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