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The old adage “you get what you pay for” may apply to most things in life, however when it comes to filing your taxes, the reverse is often true. The fact is, when it comes to filing your taxes, if you are not careful, you could end up losing some of your hard-earned money by paying an unqualified and unregulated person to file your tax return.
While some tax professionals register with IRS and are credentialed—enrolled agents, certified public accountants and attorneys are required to meet professional standards—sixty percent of paid tax preparers are unregulated and have no training or educational requirements. In Michigan, anyone can hang out a shingle and charge whatever they want to do taxes regardless of their training, expertise or ability. This lack of regulation leaves taxpayers vulnerable to unscrupulous preparers charging hundreds of dollars to have simple tax returns prepared.
According to the National Society of Accountants, the average American family pays anywhere from $159 – $447 on tax preparation. As I have learned in my annual MEIC client interviews, many pay even more to have their very simple and basic tax returns filed.
Many big-box tax preparation companies charge by the form and tack on additional fees or hard-sell services such as offering same day “refunds” or issuing the refund on a debit card. These same day “refunds” are particularly troublesome, since they are actually refund anticipation loans (RALs) using the projected refund as collateral. RALs often cost more than a 200% interest rate to receive money a few days sooner than the week or so it typically takes the IRS to issue a refund (nine out of ten refunds are issued by the IRS within 21 days with many coming in just a few days). But with a RAL, if the refund doesn’t cover the loan (again, it’s a loan, not the actual refund), the taxpayer must come up with the difference or risk even more fees from the preparer. Additionally, since there are no regulations in Michigan for paid tax preparers, there are also no price disclosure requirements like you have when you get a loan or have your car serviced, leaving many taxpayers with sticker shock after the preparer has finished their return.
There is good news, though. Most people can keep more of their hard-earned money and file their taxes for free!
If your household brings in under $66,000 you can prepare and file your federal taxes online for free. Earn less than $54,000 and you can get in-person help through a voluntary income tax assistance (VITA) site or a tax counseling for the elderly (TCE) preparer.
Every tax preparer at a VITA or TCE site is certified by the IRS and trained to do federal, state and local taxes. This results in rejection rates as low as two to ten percent which is much lower than the rate of paid tax preparer returns (a 2014 report by the U.S. Government Accountability Office found that filings by paid preparers were riddled with errors) and doesn’t cost you hundreds of dollars, either.
Last year 101,000 Michigan residents utilized these free tax services. If you or someone you know is among the 70 percent of Americans who will receive a refund this year, why don’t you give a free tax preparer a try? It won’t cost you anything and, chances are, it’ll be as good (if not better) than paid service and will enable you to keep your money where it belongs—in your pocket.
For more information, visit Michiganfreetaxhelp.org or dial 2-1-1.