Tax preparation is the procedure of preparing tax statements, usually income tax statements, for an individual other than the typical taxpayer, and in general for tax payment. Tax preparation can also be performed by the average taxpayer without the aid of tax preparation services and/or software. Tax preparation can take several forms, including preparation of federal and state income tax return, preparation of the federal income tax return, preparation of state income tax return, preparation of a state income tax return, preparation of an annual return to qualify for tax incentives, preparation of an election campaign contribution report, or preparation of an estate tax return. In any of these instances, the preparation of the tax documents requires specialized knowledge and experience.
Many tax preparation businesses and tax accountants provide their services through the use of tax preparation attorneys, paralegals, CPAs, enrolled agents, chartered accountants, and certified public accountants. Tax preparation attorneys and paralegals are typically independent contractors, representing the client in all matters related to the preparation of federal and state income tax documents. Certified public accountants (CPA’s) are also generally considered to be tax preparation specialists, since they are required to pass the CPA exam and are thoroughly trained on tax preparation issues. Tax professionals who do not hold an advanced degree in accounting may sometimes be employed as accountants, depending on their experience and skills.
Taxpayers have a number of options when choosing tax preparation professionals. Some choose these professionals based on recommendations by friends or other professionals, while others seek these professionals based on referrals from taxpayers who are satisfied with their services. Businesses and individuals also may seek the assistance of a professional tax preparer after identifying a need for such a professional. One reason that companies may hire a preparer to perform their taxes is because they have too many questions and require expert advice.
The IRS restricts the work that tax preparation attorneys, CPAs, CPA’s, enrolled agents, and other non-certified tax preparers may do. The restrictions include charging an hourly fee and retaining a non-residential physical location for business. Some professional tax preparers also elect to accept payment through the Internet. Non-certified tax preparation professionals must operate in a manner consistent with the rules set forth by the Internal Revenue Service, which makes these professionals liable to criminal prosecution if they circumvent the rules.
Professional tax preparers typically have pricing methods that depend on the size of the tax situation, the level of knowledge on the part of the taxpayers, and the preparation schedule of the situation. Since these tax experts are hired to help taxpayers, it is important that they provide accurate and truthful information to clients. In order to obtain accurate and truthful results, these experts must have access to the latest information on the current state of the federal tax laws, which is often updated quarterly. In addition, these experts must have a comprehensive understanding of the complex tax situations of both businesses and individuals. Learn more about virtual tax preparation here.
There are also differences between tax return preparation and filing. For example, tax return preparation services can also file and process returns for individuals, while filing requires them to have certain knowledge of tax law, such as the tax brackets and standard deductions used in calculating taxes. Some tax preparation firms also offer complimentary software packages that tax filers use to file their returns. Other services provided by these firms include assistance with filing federal and state income tax returns and preparing the necessary paperwork needed to file with local government authorities. However, most tax preparation firms do not offer any assistance with filing federal or state income tax returns.