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From free to with a fee: The many options for tax preparation

March 11, 2021
IRS Free File, fee-based specialized services, and in-between ways to save money and time, and maximize your return.

The adage claims “there’s no free lunch,” but did you know that there is a program called IRS File Free? It might be the first time you’ve heard of this service, but it’s actually been around since 2003.1,2 Even if you don’t qualify for it, knowing about it can come in handy for others in your life circle.

An unexpected filing bonus

Two years ago, my friend Amanda tried to fill out her young adult son’s tax return. Under normal circumstances she would have turned this task over to him; she firmly believes that young adults need to be accountable for their financial lives. But her son was out of the country and it was easier for Amanda to take over the task. She read all of the instructions, added and subtracted all of the numbers on form, and submitted his return.

Despite the hours she spent on his return, she still made mistakes—the good news was that his refund came out higher than anticipated. When tax time rolled around the following year, her son was still out of the country. Amanda decided to use TurboTax3,4 online—she didn’t want to repeat the previous year. She completed his return in a matter of minutes when suddenly a computer prompt popped up that said “return filed/no fee required.” Her son’s return that year qualified for the IRS File Free Program. Amanda was off the hook, and this year there were no mistakes!

IRS File Free options

The File Free Program is a resource created by a public-private partnership between the IRS and companies that offer online tax preparation and filing options.1,2 The two different free programs are based on adjusted gross income (AGI). Taxpayers with an AGI of $72,000 or less can qualify for services with program partners.1,3 Nine partner companies will fill out and file federal tax returns for free in 2021. Each company has specific eligibility requirements, and some will also prepare state tax returns.4 There’s an online tool designed to help people see if they qualify for free services.5 A quick test drive using “dummy information” will show how easy it is to use the tool.

Anyone with an AGI over $72,000 can use the other IRS File Free pathway. Taxpayers can use the free fillable online federal tax forms, and there are no filing fees.6 The catch: You have to know how to fill out your own return.1,3

Since many people earned less income in 2020, File Free options are a way to ease financial situations. The options are also handy for adult children or students with minimal earnings. As well, there are people in our communities, neighborhoods, churches, or extended families who may benefit from a service like this.

What level of services do you need?

It might seem like all tax preparation specialists or service providers are the same, but nothing could be further from the truth. Think of the various levels of service like patient care: Every patient does not need the same level of dental services. Some will do just fine with a simple hygiene appointment and exam once or twice a year; other patients are highly complicated, needing multiple evaluations and therapies throughout the year or require a specialist’s evaluation and treatment.

Financial health can be as important as physical health. Your annual tax return plays a crucial role in long-term financial wellness. It needs to be properly filled out by someone who understands your unique situation. A precision tax report can go a long way toward avoiding an audit triggered by a sloppy or inaccurate return.

If you work for only one dental practice, your income stream is simple, and there aren’t a lot of deductions, then your annual tax return should be easy and not require deep oversight. When a return is simple, so are the options: prepare your own return, or use a simple online service or a local tax preparation service. If your financial situation is more complicated, it’s important to understand the options.

Credentials: How they vary and what you might need

The IRS has extensive online information about the credentials and qualifications for those who can bill for tax preparation services.7 Anyone who is paid to prepare your tax return must have an active IRS PTIN (Preparer Tax Identification Number).8

One of the biggest differentiations among preparers is based on representation rights. Tax specialists who have limited representation rights offer basic services but are not allowed represent their clients before the IRS in complex matters.7

The most basic level is a preparer with a PTIN and no professional credentials. Some preparers in this category choose to participate in the IRS Annual Filing Season Program. This voluntary continuing education program focuses on filing season readiness, preparing individuals for a specific tax year.

Typically, preparers with AFSP certifications don’t have advanced credentials, and their services can be perfectly adequate for uncomplicated returns.7-9

When you need or want more credentials

At the top level, the IRS recognizes three different professional groups: certified public accountants, attorneys, and IRS-enrolled agents. These credentials allow unlimited representation rights, serving clients in matters involving a wide array of issues with the IRS.7

CPAs and attorneys have advanced levels of academic preparation, and both can offer clients a full range of services. Just like dentistry, there are many areas of interest for both CPAs and attorneys; not all specialize in tax preparation and planning just as not all dentists are equally interested in all phases of oral health. If you choose to work with a CPA or attorney, make sure they have a strong interest in tax issues and aren’t just preparing returns to create a revenue stream for their bottom line.

The least well-known fully credentialed preparers are IRS enrolled agents. These tax preparers, licensed by the US Department of the Treasury, are totally focused on taxes. Taxes are their arena, and this is what they are licensed to do. Their goal is to prepare an accurate return that complies with federal and state laws.

Earning an enrolled agent license is not for the fainthearted. Enrolled agents have to pass both a suitability check and a three-part examination that demonstrates proficiency on multiple tax matters; they also must complete a minimum of 72 hours of continuing education every three years to maintain their license.7 The roles of IRS enrolled agents and that of dedicated dental hygienists share similarities; both professions are exacting and detailed, and both are focused on supporting health matters though careful documentation and subsequent analysis. We take care of people’s bodies, and they take help care of a client’s financial well-being.

Verifying credentials

Do you know how to determine the type of credentials and qualifications of those who prepare federal tax returns? The IRS maintains a free online easy-to-search public directory of all preparers with a valid PTIN. The directory is current as of December 31, 2020, and it lists everyone who holds professional credentials recognized by the IRS or who have a Record of Completion for the current Annual Filing Season Program. The verification tool is easy to use: Check off the desired professional classification, put in your zip code, search area, and if interested, the name of a tax preparation specialist.10

Many national organizations have members who are tax professionals. These organizations provide their members with continuing education and ethical guidelines. The IRS maintains a partnership list, which is another avenue to consider when looking for a tax professional.10

Our dental hygiene education is focused on science and patient care, not on financial literacy. Our personal future is brighter and clearer when we understand our unique needs. From free support to a fee-based service provider, there’s an ideal option for everyone.

References

  1. Free file: about the Free File alliance. IRS. Updated October 16, 2020. Accessed December 29, 2020. https://www.irs.gov/e-file-providers/about-the-free-file-alliance
  2. File Free Alliance homepage. Partnered with the IRS to help taxpayers e-file. Accessed December 29, 2020. https://freefilealliance.org/
  3. IRS Free File online options. IRS. Accessed March 11, 2021. https://apps.irs.gov/app/freeFile/
  4. IRS Free File online: Browse all offers. IRS. Accessed December 29, 2020. https://apps.irs.gov/app/freeFile/browse-all-offers
  5. IRS Free File online: Lookup tool. IRS. Accessed December 29, 2020. https://apps.irs.gov/app/freeFile/filing-status
  6. IRS free fillable forms. IRS. Updated December 16, 2020. Accessed December 29, 2020. https://www.irs.gov/e-file-providers/free-file-fillable-forms
  7. Understanding tax return preparer credentials and qualifications. IRS. Updated November 3, 2020. Accessed December 29, 2020. https://www.irs.gov/tax-professionals/understanding-tax-return-preparer-credentials-and-qualifications 
  8. Need someone to prepare your tax return? IRS. Updated November 25, 2020. Accessed December 29, 2020. https://www.irs.gov/tax-professionals/choosing-a-tax-professional
  9. Annual Filing Season Program. IRS. Updated September 23, 2020. Accessed December 29, 2020. https://www.irs.gov/tax-professionals/annual-filing-season-program
  10. Directory of federal tax return preparers with credentials and select qualifications. IRS. Accessed December 29, 2020. https://irs.treasury.gov/rpo/rpo.jsf
  11. IRS tax pro association partners. Accessed December 31, 2020. https://www.irs.gov/tax-professionals/irs-tax-pro-association-partners

ANNE NUGENT GUIGNON, MPH, RDH, CSP, a visionary thinker, has received numerous accolades over four decades for mentoring, research, and guiding her profession. As an international speaker and prolific author, Guignon focuses is on the oral microbiome, erosion, hypersensitivity, salivary dysfunction, ergonomics, and employee law issues. She may be contacted at [email protected].

About the Author

Anne Nugent Guignon, MPH, RDH, CSP

ANNE NUGENT GUIGNON, MPH, RDH, CSP, a visionary thinker, has received numerous accolades over four decades for mentoring, research, and guiding her profession.  As an international speaker and prolific author, Anne focuses is on the oral microbiome, erosion, hypersensitivity, salivary dysfunction, ergonomics, and employee law issues. She may be contacted at [email protected].

Updated June 26, 2020