Watch Out for These Red Flags: Is Your Tax Preparer Saving You Money or Costing You Big Bucks?

Each year, after your accountant completes your tax returns, you review them, put pen to paper, and heave a sigh. Doubt inevitably creeps in as you question various aspects—did you end up paying more (or less) than necessary? Was everything included correctly? Could an error have been made by the accountant?

The final question is especially tricky. It’s difficult to assess if your tax preparer did an adequate job on your returns. Even though you might look for inaccuracies, some errors, oversights, or exclusions related to your tax responsibility could remain unnoticed.

Filing federal taxes, particularly when dealing with intricate forms, requires making several judgement decisions. Using the same information, you could complete two versions: one prepared through tax preparation software and another compiled by an accountant, yet end up with differing outcomes.

It’s much more challenging to review what [tax preparation experts] are up to," explained Kossandra McDuffie, an Atlanta-based certified financial planner and CPA. "However, you can search for warning signs.

For instance, self-employed people who consistently submitted their four quarterly estimated payments as advised by their accountant yet still encountered an underpayment penalty might develop reservations regarding their tax professional.

Additionally, you must pay attention to your accountant’s management of tax-advantaged accounts, as noted by McDuffie. With various choices available—including deductible and nondeductible IRAs, Roth IRAs, and SEP plans—you should ensure that your tax professional grasps the intricacies of every type of account, determines which option suits you best, and knows how to prevent penalties related to incorrect contributions.

Math mistakes are concerning but relatively uncommon due to the advanced software used by most tax professionals. Instead, these experts might become careless and neglect important details or lose paperwork, leading to incorrect filings. "Should the accountant fail to catch major, significant elements, then minor aspects could easily slip past as well," according to McDuffie.

To start with, she recommends choosing one of the tax forms completed by your accountant. Next, pose questions like:

• Could you guide me on how you filled out this form?
• How do you determine whether all has been precisely recorded here?
• What are some typical mistakes you look for with this form, and which ones might other tax preparers overlook?

"This provides insight into their usual review process and highlights what aspects they generally identify," McDuffie explained.

No matter if you're bringing on a fresh accountant or have been working with someone for an extended period, assess their dedication to continuous learning. Inquire about how they stay updated with fluctuating tax regulations and discover which trends they observe that could impact your finances.

"You want them to remain updated about tax matters throughout the year and be informed about new laws such as the Secure 2.0 Act," McDuffie stated.

Preferably, your accountant contacts you periodically over the course of the year. Even if these check-ins amount to emails such as reminders or newsletters instead of direct phone conversations, it's still preferable to having them not reach out at all.

"The effective advisors take initiative," stated Corey Briggs, a certified financial planner based in St. Louis, Mo. "They inform their clients of alterations in the tax code. Additionally, they could suggest tactics like conducting Roth conversions, consolidating charitable donations, and engaging in tax-loss harvesting" to assist with your planning process.

Briggs suggests that merely 10% to 20% of tax preparers take initiative when it comes to taxes. The rest do not offer significant tax planning or strategies; rather, they simply complete your filings using the details you furnish them with.

If you're uncertain about how well your present accountant is performing, consider hiring another professional or handling taxes yourself using tools like TurboTax or TaxSlayer. Getting a new perspective might assist you in spotting deductions or credits that were overlooked before. Additionally, this could lead to uncovering alternative ways to compute depreciation or manage business expenditures.

Briggs stated, "When our clients change accountants, it typically happens because they aren’t receiving sufficient attention or proactive guidance."

Changing to a different tax preparer likely won't reduce your expenses. Across much of the U.S., there's a scarcity of tax preparation experts willing to take on new customers. "Costs have skyrocketed," Briggs noted. "People who previously paid between $500 and $750 before COVID are now facing charges of $1,000 to $2,500" for fairly straightforward federal filings.

More: Inform your grown kids about your finances — but keep some details to yourself.

Also read: What amount should you expect to pay for tax preparation? It could be zero dollars—if you're eligible for free tax assistance.