3 tips to avoid being scammed by tax preparers

Like the holidays, the sights and sounds of tax season are evident long before its arrival. Tax preparers and related companies are bidding for your tax business now.

Most of these companies and individuals don’t intend any harm, but far too many will take advantage of unsuspecting taxpayers before and during tax season.

1. Look closely at what you’re paying for.

Undisclosed fees are among the most prevalent dangers during tax time. Often, people let a preparer handle their taxes for them without having an upfront conversation about how much they will be charged.

But even for those who do ask for tax preparation prices, there are many hidden fees that don’t get discussed, such as warranties, processing or electronic filing fees, and other items, which make it difficult to comparison shop.

Be diligent to ask as many questions as possible before letting someone prepare your taxes. Ask how fees are determined, and be wary of preparers who base fees on the percentage of your refund, as it could be an incentive for dishonest behavior

2. Tread carefully with refund anticipation checks.

Patience is an important virtue to exercise during tax season. Especially around the holiday season, many companies offer loans to customers that advance one’s anticipated tax refund.

These loans are typically laced with enormous interest rates, some as high as 218 percent. Such loans are often tools to sell professional tax preparation (with high fees) to people who may not otherwise be able to afford it, because the fees are deducted from the refund check. Often, these fees cause a person to lose a significant portion of their refund.

3. Know your tax preparer.

While there are two bills pending in the federal government that would increase oversight of tax return preparers, there are currently no regulations in Wisconsin, which can make it risky to hand over sensitive personal information and complete control over tax processing.

Sadly, many tax preparation scammers target neighborhoods with high concentrations of immigrants or low-income consumers. But there are options.

Consumers with modest incomes can use the IRS’ FreeFile service at www.irs.gov, which provides access to free tax preparation and filing services.

If a taxpayer is not computer savvy, the IRS also provides Volunteer Income Tax Assistance sites that offer free tax preparation for low-income, limited English proficient, elderly and disabled individuals.

You can find a VITA site by visiting www.irs.gov or by calling 1-800-906-9887. These volunteers have to be certified by the IRS, which provides a higher level of accountability.

All taxpayers should ask tax preparers for their IRS-provided preparer tax identification number. It’s also prudent to use established tax preparers who have worked in communities for many years and have developed a good reputation and avoid those who open shop during tax season but leave town immediately after the season ends.