Hiring a Tax Preparer: Tips To Know

In many cases, hiring an expert can save you a lot of time and money. But always keep in mind; you're responsible for your own return even if it's prepared by someone else. Thus, you want to make sure you hire someone capable and qualified. The IRS offers the following guidelines for choosing a tax professional:

• Be skeptical of preparers who claim they can get you a larger refund than others. If your return is prepared correctly, every preparer should get very similar numbers.
• If a preparer guarantees results or bases fees on a percentage of the amount of the refund, beware. According to the IRS, "A practitioner may not charge a contingent fee (percentage of your refund) for preparing an original tax return."
• Choose a preparer you will have easy access to. Be sure to check who will actually be preparing the return -- if a firm delegates your work to someone with less training or to an unknown worker, take your business somewhere else. Check if the preparer will send your return to a foreign country for preparation. If so, that's a red flag -- foreign countries don't have the same security and privacy laws as the U.S., so you won't have the same recourse if your information is compromised.
• Check the preparer's history with the Better Business Bureau, the state's board of accountancy for CPAs or the IRS Office of Professional Responsibility for enrolled agents. Make sure the preparer's credentials meet your needs.

Once you've hired a preparer, here's what you need to know:

• Your preparer must sign the return and complete the preparer portions of the form and include his or her identifying number. He or she should also give you a copy of the return.
• Be sure to review your return and understand your entries before it is sent in.
• Never sign a blank return or sign in pencil.

This year, thanks to a late breaking Congress many tax-law changes were approved after the IRS sent the 2006 Tax year forms to the printer. So guess what?  Some taxpayers will go crazy trying to figure out how to take the deductions that don't appear on Form 1040 and elsewhere.

The Tax Relief and Health Care Act of 2006, signed into law on Dec. 20, revived some expired tax perks, including deductions for state and local sales tax, and higher education.  But, since Congress passed the rules too late, you won't find a line for those deductions on Form 1040 or Schedule A. To go even further, some IRS approved instructions may state some deductions are no longer available.

Those who file online won't have the same problem. Software vendors say their software is updated with the updated rules, but whether you file online or on a paper form, don't forget to claim the deductions described below.

Tuition deduction:

One such deduction is for tuition and fees paid for higher education, now available for 2006 and 2007. Taxpayers can deduct up to $4,000 of tuition and fees paid to colleges. The tax break starts phasing out for single filers with an adjusted gross income of $65,000 or more and for joint filers with an adjusted gross income of $130,000 or more.

This year, to claim the higher-education tuition and fees deduction, taxpayers need to go one line down, to line 35, and write the letter "T."

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Sales tax deduction

Despite what some of the printed instructions might say taxpayers who itemize can choose between a deduction for state income taxes they paid or a deduction for state or local sales taxes paid. Taxpayers can figure the deductible amount by using their receipts or by using the sales tax tables in IRS publication 600.

Taxpayers choosing to take the state and local sales tax deduction should claim it on Schedule A, by entering the letters "ST" on line 5 of Schedule A, which they should then file with their Form 1040.

Teachers' deduction

About 3 million teachers claimed the educator-expense deduction last year. This year, taxpayers eligible for the $250 deduction will need to write their claim on Form 1040's line 23

Taxpayers claiming the educators' deduction should write the letter "E" on Line 23.

Telephone Tax Deduction

From past ealerts we told you of the ability to deduct excise taxes paid on telecom bills over the last three years. This is a Credit- not a deduction. A Credit off sets any takes owed while a deduction reduces taxable income. There are special instructions in your Tax book on how to do this one. On Form 040's line 71 look for the excise tax refund. Taxpayers can figure their refund by using their telephone bills to calculate how much they paid in eligible excise tax between Feb. 28, 2003 and Aug. 1, 2006. Or, taxpayers can claim a standard amount refund based on the number of personal exemptions they've paid ($30 for one exemption, $40 for two, $50 for three and $60 for four or more,

If you claim the actual amount of tax you paid, you'll need to file a Form 8913. Otherwise, you can claim your refund on Form 1040.