Every growing company will eventually reach a point where spreadsheets and estimation just don’t cut it anymore. Once this point has been reached, the decision to hire a tax preparer will make all the difference when it comes to compliance, money movement, and stress levels. Many entrepreneurs rush through the process, but a poor choice could lead to revised returns and headaches with the IRS.
In this blog, we have covered the top hiring mistakes that startups and growing companies in the United States make and how to avoid them. You will be educated on verifying credentials, candidate selection, assessing remote work options, and establishing a lasting relationship that will go past one filing season.
Why Startups Should Hire a Tax Preparer With Verified Credentials and Relevant Experience
Credentials make up the first filter in any hiring process, and where many companies fail. Before choosing to hire a tax preparer, it is necessary to know what each credential allows the person to do. It is important to the security of your audit, to the choices of planning available to you, and to your liability.
Confusing a PTIN With Professional Qualifications
Every tax preparer must have a Preparer Tax Identification Number (PTIN), which is to be included in every form prepared by that individual. However, having a PTIN implies registration rather than qualifications or professionalism.
A tax preparer who possesses only a PTIN is limited in his ability to represent you before the IRS. In case any assistance during an audit is needed, get in writing the type of representation the candidate will offer you.
Overlooking CPAs, Enrolled Agents, and Tax Attorneys
Certified public accountants, enrolled agents, and attorneys have unrestricted representation rights within the Internal Revenue Service. They can represent clients in any tax-related issue regardless of who prepared the tax return originally.
It can be very important when considering a startup that will deal with payroll taxes, multistate transactions, or equity compensation. Find out what credentials the candidate holds and check with the organization awarding it, for instance, a state board of accountancy or the Internal Revenue Service.
Ignoring Industry and Entity-Specific Experience
A preparer who specializes in preparing individual income tax returns for most of the year might face problems concerning partnership allocations, S-corporation basis issues, or research credits. Entity classification plays an important role in practically all aspects of the return preparation.
Ask for samples of scenarios similar to yours, such as that of a first-year C corporation or a multi-member LLC. Good candidates will provide specific examples.
How to Find a Tax Preparer Without Falling for Common Screening Shortcuts
The location and assessment of the prospective candidate go hand in hand to dictate the caliber of your hire. When you find a tax preparer via the Internet or through one reference, you might end up skipping the steps that ensure safety. A structured screening process will take less time than the cost of rectifying a wrong filing.
Relying Only on Price or Refund Promises
Often, the cheapest quotation is not the cheapest total cost. Cheap service providers usually leave out certain elements like planning, responses to notices, or amended tax returns, which can cause you to incur more costs in future for things you thought were covered in the first place.
Be wary of people who promise to give you a higher refund before seeing your documents or basing their fees on how much refund you get. The IRS warns against “ghost preparers,” who do the tax work without signing your return.
Skipping Reference and Disciplinary Checks
Ask for recommendations from companies that are in the same phase as you and have similar industry experience. An interview with a current client will demonstrate responsiveness, accuracy, and communication skills that a resume cannot show.
Next, do your own due diligence. The IRS has a database of all federal tax return preparers with credentials, as well as disciplinary actions taken by state boards of accountancy and bar associations.
Failing to Run a Practical Skills Test
Interviews focusing on resumes are not able to understand how an applicant analyzed real-life situations. Present each interviewee with a stripped-down case, like telling apart between employees and independent contractors, or calculating estimated taxes for a loss year.
Take notice of what kind of questions they ask before giving an answer. Good preparers try to understand the situation, find missing documents, and give their rationale in simple terms.
Hire Remote Tax Preparer Talent Safely: Security and Compliance Checks for U.S. Startups
Remote working increases the availability of people but also increases the surface area of risks. The tax files have all kinds of sensitive data like Social Security numbers, bank information, and payroll details. When you hire remote tax preparer support, then security and compliance measures have to become part of the recruitment process.
Skipping a Review of the Written Information Security Plan
The FTC Safeguards Rule mandates that tax preparers must have a written information security plan. There are some publications from the Internal Revenue Service to help preparers in complying with this rule, such as Publication 4557.
Ask candidates to provide you with their information security plan. Look for multi-factor authentication, encryption, and secure client portal, not e-mail attachment.
Overlooking Consent, E-File Authorization, and Software Access
These federal guidelines under Section 7216 regulate the disclosure and usage of your tax information by tax preparers. The consent requirements can be stricter in case the tax information is to be disclosed to an overseas preparer; hence, it is vital that you find out how your candidates deal with this situation.
Furthermore, make sure that you know the process of electronic filing. Find out who will have the Electronic Filing Identification Number (EFIN) and how you will sign Form 8879.
Treating Remote Hires as Low-Supervision Hires
Distance is not synonymous with disengagement. Review points, having an agenda of documents, and having a clear means of communication should still be established by companies choosing to hire remote tax preparer assistance.
Establish response times and a person responsible during busy times. Without a process in place, small queries can end up with deadlines being missed.
Contract, Onboarding, and Retention Mistakes That Undermine Your Tax Preparer Hiring
Even a very well-qualified candidate will fail to deliver if there are no clear terms at the onset of the engagement. Most of the problems faced in recruiting occur after the candidate accepts the offer, which means that even as much importance should be given to the contracts and onboarding as to the screening process.
Leaving Scope of Work and Fees Vague
The engagement letter must define which returns are to be prepared and whether planning and estimated tax payments are included, and which entity is responsible for receiving notices from the IRS or any other state agency.
The engagement letter should define the process of determining fee structures and what might require extra fees. Lack of clarity on this matter causes many conflicts; having everything in writing protects both entities.
Skipping Structured Onboarding
Context needs to be provided to new preparers prior to being able to assist. The preparer should be provided with past tax returns, the chart of accounts, the payroll records, and any elections or credits claimed by you.
In order for your preparer to contact the IRS on your behalf, the proper authorization forms need to be completed, including form 2848 and 8821. This should be limited to that which is absolutely necessary.
Hiring Only for Filing Season
The majority of start-up owners do not plan their taxation until the deadline approaches. Such an approach significantly limits the preparer's opportunities since the most effective way of paying lower taxes is the planning made prior to year-end.
The cooperation between the preparer and the taxpayer throughout the whole year will help in properly managing the payments and the choice of the best form for conducting business.
A well-informed decision lies in preparation. When you hire a tax preparer, check their credentials and do not make assumptions; assess using real-world examples; and understand how your information will be protected.
Put everything down in writing, do proper onboarding, and think about more than just one year’s worth of tax filings. For new ventures and growing companies, approaching hiring from the angle of compliance instead of just cost will save money and solidify finances.
If you need assistance with the preparation of tax returns or need to build a finance team, we can help the U.S.-based startups and growing companies find a tax preparer who is capable, safe, and matches your needs. Work with The Fino Partners, the outsourcing partner that provides dependable financial and partnering solutions.
