As helpful as the preparer had been, he didn't understand the acting business and so couldn't help me better understand what additional expenses I was entitled to deduct. I lost money because he didn't know how to make the best use of deductions on my tax return. The returns weren't wrong; they just weren't as right as they could have been.
But I don't blame the preparer; it was my fault. I had spent as much time looking for a tax preparer as I might spend looking for a place for dinner. Most actors couldn't care less about learning the rules, and I was no exception. I eventually realized that as important as it was to be professional in the pursuit of my career, it was equally important to be professional with my finances and make sure I didn't lose money by using the wrong preparer.
So when searching for a tax professional, here are warning signs and suggestions to consider:
Be careful when a tax preparer claims that he or she can obtain larger refunds than other preparers. All too often, "miracle" returns initiate Internal Revenue Service audits. Although the average person's chances of being examined are only slightly more than 1 percent, actors must use additional forms to properly report their expenses, and that significantly increases the likelihood of an audit. If you are fortunate enough to make acting your lifelong career, you can count on an IRS examination somewhere along the line. If the IRS catches several mistakes that cause you to pay additional taxes, the chances are even better that you will hear from them again.
Under IRS rules, paid tax professionals must sign the returns they prepare. If yours doesn't want to, that's a sure sign of problems. In addition, make sure your preparer will be available to assist you in the future. Over and over again we are consulted by taxpayers who can't find their original preparer when they get a call for an audit or about other problems. The IRS has three years after the filing date to audit your return, and even more time if it suspects fraud.
Ask questions before you hand over your paperwork. Find out if the preparer pursues continuing education or is affiliated with professional organizations that hold him or her to a code of ethics. The reason the IRS is instituting new rules regarding the education and conduct of tax preparers is the abundance of undereducated and unprincipled preparers out there.
Reputable preparers will ask to see receipts and will ask multiple questions to determine the legitimacy of expenses, deductions, and other items. That's because they are trying to help you avoid penalties, interest, and additional taxes in case your return is examined.
You are ultimately responsible for all the information on your tax return. Make sure you review and understand every number on it before signing. No honest preparer should be bothered when you ask questions about your return. Oh, and never, under any circumstances, sign a blank tax form.
There are lots of bad and—even worse—unscrupulous preparers just waiting for your call. Be careful.