CPA, Enrolled Agent or Tax Software: Who Should Do Your Taxes

Should I do my own taxes or hire a CPA?

You may prepare and file your own federal return; no law requires a paid preparer. The IRS lists software, Free File, volunteer sites, paper forms and tax professionals as ways to file. Whoever prepares it, you are legally responsible for what the return says.

Doing it yourself fits when every number comes from a form you received (W-2, 1099-INT, 1098) and no answer needs judgment. A case stops being simple when it includes:

• self-employment or contractor income with mixed personal and business costs
• a withdrawal from an inherited IRA or other retirement account
• selling a home you once rented out or used for business
• income in two states
• a move to the US this year, or income, accounts or funds outside the US (first year as a US tax resident; foreign account reporting)
• past years left unfiled, or an IRS letter already in hand

Gather before you decide: your last two returns, the wage and income transcript and account balance from your IRS online account, and every tax form you received this year.

Which free filing options does the IRS list?

The IRS offers three free routes: Free File guided software below an income limit, Free File Fillable Forms at any income, and volunteer preparation through VITA and TCE.

IRS Free File handles only the current year's return; past-due years need another route.

What can tax software not decide for you?

Tax software does the arithmetic on your answers; it cannot decide the facts behind them. Each item below turns on judgment, and a wrong answer flows through the whole return.

Enrolled agent vs CPA vs tax attorney: what is the difference?

Anyone with an IRS Preparer Tax Identification Number (PTIN) may prepare returns for pay. The credential decides who licenses the preparer and whether they can represent you before the IRS.

A credential shows who may represent you, not whether a preparer regularly handles returns like yours. Ask which forms and situations they prepare every season. A CPA or attorney may also offer services well beyond tax returns; some specialize in tax, others do not.

Who can represent me in an audit, a collection notice or an appeal?

CPAs, enrolled agents and attorneys can represent you on any IRS matter, including audits, payment and collection issues, and appeals (Circular 230, 31 CFR 10.3; IRS credentials page).

An Annual Filing Season Program participant may represent you only during an examination of a return they prepared and signed, and only before revenue agents, customer service representatives, similar IRS employees and the Taxpayer Advocate Service. Under the Form 2848 instructions, such a preparer cannot appear before appeals officers or revenue officers, cannot sign waivers, closing agreements or refund claims for you, and cannot extend the time the IRS has to assess or collect. The preparer also needs a valid program record for the year they signed the return and for each year they represent you. A preparer with only a PTIN cannot represent you at all.

Under section 7525, tax advice from a CPA, enrolled agent or other practitioner authorized to practice before the IRS can carry the same confidentiality as advice from an attorney, but only in a noncriminal tax matter before the IRS or in federal court, and never for written tax-shelter promotion. Whether a conversation is protected, and any question of criminal exposure, is for an attorney.

How do I find a good tax preparer and check their credentials?

Search the IRS Directory of Federal Tax Return Preparers, then confirm a CPA licence with the state board of accountancy or an attorney's standing with the state bar.

1. Search the IRS directory. It lists attorneys, CPAs, enrolled agents, enrolled retirement plan agents and enrolled actuaries with a valid PTIN, plus Annual Filing Season Program participants (IRS). A preparer with only a PTIN will not appear.
2. Check the licence and discipline. The IRS points to state boards of accountancy for CPAs and state bars for attorneys. Some states also register other paid preparers; New York, for example, requires yearly registration unless the preparer is an attorney, CPA, public accountant or enrolled agent.
3. Confirm the preparer will sign. A paid preparer must sign the return and enter a PTIN on the copy filed with the IRS (IRS).
4. Ask who answers letters after filing. Ask whether the preparer can represent you if the IRS writes, and whether they are reachable after the April deadline. Since you sign the return, ask whether they can explain it in a language you read.

Which red flags should make me walk away from a tax preparer?

The IRS warns against a preparer who will not sign the return, ties the fee to your refund, or wants the refund paid to them (ghost preparer warning; preparer tips):

• the preparer will not sign the return or enter a PTIN (a "ghost preparer")
• the fee is a percentage of your refund, or the preparer promises a bigger refund than others can
• the refund is to be deposited into the preparer's account instead of yours
• cash only, with no receipt
• you are asked to sign a blank return or a return you have not reviewed
• the preparer offers to file from your last pay stub before your W-2 arrives, which breaks IRS e-file rules
• the preparer adds income, credits or deductions you do not recognize, or asks no questions and wants no records

Who is responsible to the IRS for what a preparer signs?

You are. Taxpayers are responsible for every item on their return even when someone else prepares it, so review the whole return before you sign. The preparer must give you a copy (section 6107), and a preparer can face a separate penalty under section 6694 for an understatement caused by an unreasonable position; that penalty does not remove your tax. If a preparer already filed a wrong return, see when a tax preparer filed a wrong return.

How much should a tax preparer charge, and what makes a return cost more?

The IRS sets no price for return preparation. The fee generally tracks the work, and the work grows with what the return contains:

• each extra schedule or form, such as Schedule C for a business, Schedule E for a rental, or partnership K-1s
• each state return beyond the first
• prior-year or amended returns
• missing records that have to be rebuilt from bank statements
• an IRS letter or notice to answer
• foreign accounts, foreign income or a second country's return

Ask for a written scope that lists the returns, forms and years included and what is billed separately. For an expat return's quote, see choosing a US expat tax preparer.

What should I bring, and what IRS access will a preparer ask for?

Bring your last two returns, every form you received and the records behind any deduction. A preparer may also ask you to sign Form 8821 or Form 2848 so they can see your IRS records or speak for you.

What to bring:

• the last two federal and state returns
• from your IRS online account: the wage and income transcript, the account transcript, payments made (including estimated tax) and any notices
• every W-2, 1099, 1098 and K-1 for the year
• records for business costs, charitable gifts and other deductions
• last year's adjusted gross income or self-select PIN, which e-filing uses to verify your identity when you file yourself; a preparer has you sign Form 8879 to authorize the e-filed return

Form 2848 can name only a person eligible to practice before the IRS. A preparer who does not meet the representation rules can still use Form 8821 to see your records.

Is it too late to hire a tax preparer, and what does an extension change?

If the April deadline has not passed, an extension filed by then gives you until October 15 to file, so there is still time to hire someone. It does not extend the time to pay. If the deadline has passed, file as soon as you can; if you owe tax, the penalties below run each month.

You can get the extension three ways: file Form 4868, use IRS Free File (no income limit for extensions), or pay online and mark the payment as an extension payment. Estimate your tax and pay what you can by the deadline. Per the Form 4868 instructions:

• interest runs on unpaid tax from the regular due date until paid
• the late-payment penalty is usually 0.5% of the unpaid tax per month, up to 25%
• the late-payment penalty is not charged for the extension period if at least 90% of the final tax was paid by the April deadline, through withholding, estimated payments or a payment with the extension, and the rest is paid with the timely extended return; interest still runs
• if you file after the extended date, the late-filing penalty is usually 5% of the tax due per month, up to 25%; in a month both penalties apply, the late-filing penalty is reduced by the late-payment one, and a return more than 60 days late owes at least a minimum penalty set each year, or the balance due if smaller (section 6651)

A US citizen or resident living outside the country on the due date gets two extra months automatically; see choosing a US expat tax preparer.

Example

These examples are illustrative; figures are in US dollars.

A couple with wages, a new home and a baby

A married couple earns $150,000 in wages, pays mortgage interest shown on Form 1098 and has a newborn for the child tax credit. Every number comes from a form they received, so preparing it themselves with software is one route the IRS lists. At this income they are above the guided Free File limit, so they would use paid software or Free File Fillable Forms, which has limited calculations and no state return. A home business or a mid-year move to another state would change the answer.

A contractor with an inherited IRA

A contractor receives $60,000 on Form 1099-NEC, with expenses that mix personal and business use, and takes $120,000 from an inherited IRA. Which costs are business costs, the self-employment tax, a possible estimated-tax penalty and the inherited-account withdrawal rules each turn on facts, not form boxes. Those are questions to put to a credentialed preparer, and the contractor would gather the IRA statements, the 1099-NEC, the expense records and any estimated payments made.

Three unfiled years and a collection notice

A person has not filed for three years and receives a collection notice showing $40,000 owed. Free File cannot prepare past years; how to catch up is covered in catching up on unfiled returns. Of the preparer types in the table above, a CPA, enrolled agent or attorney can represent the person in collection or an appeal under Form 2848; a preparer with only an Annual Filing Season Program record cannot.

Different for you?

• Years of returns are unfiled: see catching up on unfiled returns and get individual tax help.
• A preparer filed a wrong return, kept your refund or will not return your records: see when a tax preparer filed a wrong return.
• The IRS sent a letter proposing more tax (CP2000): see responding to an IRS underreporter notice and get individual tax help.
• You inherited a retirement account: the withdrawal rules in Publication 590-B decide the tax; get individual tax help.
• You sold a home you once rented out: see the home-sale exclusion and get individual tax help.
• You earned income in two states: see remote work and state income tax and get individual tax help.
• You are self-employed or a contractor: see quarterly estimated tax payments and get individual tax help.
• You moved to the US this year or hold accounts abroad: see first year as a US tax resident and foreign account reporting.
• You live abroad as an American: see choosing a US expat tax preparer.
• You file in both the US and Canada: see finding a cross-border tax accountant and when you need a cross-border accountant.
• You hold many fund investments with K-1s in several states: see choosing a CPA for many fund investments.
• You need an accountant for a company: see choosing an accountant for a startup, switching accountants or doing your own books or hiring a bookkeeper.