How to Choose An Income Tax Preparer

A sign advertising a tax preparation service in the Capitol Heights neighborhood in Milwaukee. Photo by Elliot Hughes.

Seven years ago, Ruby walked into a commercial tax preparation service and walked out thinking she got a sweet deal.

She saw advertisements for a $99 special that would cover the cost of preparing her tax forms and would also give her an advance on her return. The preparer estimated what her return would be and gave her more than 50 percent of it up front.

A couple weeks later she returned for the remainder and learned the deal was not so simple. Fees were hidden in her agreement. She ended up paying $340. And she eventually learned that the preparer made tax claims that shouldn’t have been made, which set the IRS on her and slapped her with $2,800 in penalties.

“It was a disaster,” said Ruby, a 48-year-old telecommunications professional who asked that her last name not be used.

Ruby, the mother of two college-age students, said it took her several years to recover from the unexpected payments.

A man dressed as the Statue of Liberty dances outside a Liberty Tax Service outlet at 1336 S. Cesar E. Chavez Drive. Photo by Elliot Hughes.

“You couldn’t have moments where you could just be spontaneous,” she said. “ ‘Oh, let’s just go out to Cheesecake Factory.’ That’s a dream.”

Every tax season, when people are looking for help to file their income tax forms, low-income individuals are forced to navigate through services that pop up in their neighborhoods and may offer predatory loans, hard-to-notice fees and a mistake-prone tax return.

With little more than one month remaining before the federal filing deadline of April 17, now is the time when many people will start booking appointments with preparers without much consideration, according to Diane Robinson, who runs a free tax preparation service at the Social Development Commission.

According to a report by the Progressive Policy Institute, predatory tax preparation services open their storefronts in low-income areas because those residents are eligible to receive Earned Income Tax Credit (EITC) funds, which are a crucial supplement ($2,400, on average) of low-wage earners’ incomes and require complicated paperwork.

ZIP codes with the highest concentrations of EITC filers have about 75 percent more tax preparation storefronts per filer than moderate EITC ZIP codes, the report said.

In Milwaukee, some commercial preparers will charge up to $500 for a service that SDC, on average, would charge $250 for, if its program were not free, Robinson said.

There are multiple outlets in Milwaukee that offer a free tax preparation service for middle- or low-income households, but there are not enough for everyone, Robinson said. Here are a few tips to keep in mind when choosing a commercial preparer:

• Be on the lookout for cash advances or short-term loans. Usually these deals come with interest rates ranging from 70 to 700 percent, according to the Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP). And they can come with electronic filing fees and application fees.
• Make sure you give clear direction about whether or not you want the company to file your taxes. Never sign a document permitting it to do so if you are unsure. And always insist on receiving copies of all documents that you are required to sign or that identify the terms of a transaction, according to DATCP.
• Make sure the preparer has a PTIN (Preparer Tax Identification Number), which preparers must use on federal tax returns, said Lisa Schiller, a spokesperson for the Better Business Bureau of Wisconsin. The IRS’s website allows consumers to search for those numbers and see the preparer’s expertise.
• Make sure you understand beforehand how the service’s fees are determined, said Michelle Reinen, the director of Wisconsin’s Bureau of Consumer Protection. Avoid preparers who base their fees on a percentage of your expected tax return, she said. That encourages them to misrepresent your earnings.
• Make sure that your tax return is sent to you or directly into you bank account, rather than to the company who filed for you, Reinen said.

Below are sites in Milwaukee offering free tax preparation services for eligible taxpayers. For more options and details, go to the IRS website.

SDC North Avenue
1730 W. North Ave.
414-202-2262

Riverworks Development Corp
526 E Concordia Ave.
414-906-9650

Journey House Inc. Center for Family Learning
2110 W. Scott St.
414-647-0548

SDC Teutonia
6848 N. Teutonia Ave
414-202-2262

This story was originally published by Milwaukee Neighborhood News Service, where you can find other stories reporting on eighteen city neighborhoods in Milwaukee.