Track down the best tax preparer

A good one can ease the annual angst and might save you some money, too

On the Fun Scale, tax preparation ranks down there with wart removal. And like warts, taxes returns can come back to haunt you.

The best way to prevent problems from cropping up later is to pick the right tax pro-or get the right tools if you decide to do it yourself. If you have few itemized deductions, don't work for yourself, and don't have other complicated money issues, do-it-yourself tax prep is relatively easy. (See "Doing It Yourself? Get Some Help," below) But if you're like the 60 percent of Americans who have their returns done for them, here's what you need to know to get the most value for your tax-prep dollar.

Pick the right pro

Tax preparers have varying levels of expertise and charge accordingly. What you'll pay might also differ by the size of the firm. For example, according to a recent survey by the National Society of Accountants, solo tax preparers charged an average of $217 for the usual itemized federal form 1040 and state income tax form last tax season, compared with $245 for preparers at larger firms with three or more full-time staffers. These are your basic tax-prep choices:

• Certified public accountants. Not all CPAs specialize in doing individual income tax returns, so ask up front. To find a CPA, ask friends and neighbors or go to www.aicpa.org. Under "Consumer Information" click on "Find a CPA."
• Enrolled agents. Unlike CPAs, who can handle a variety of financial activities, EAs focus solely on taxes. They must have worked for the IRS for at least five years or passed exams on tax codes and calculations. Enrolled agents might work for themselves or in a CPA firm or storefront office. To locate one, go to the Web site of the National Association of Enrolled Agents.
• National tax-prep chains. Storefront operations like H&R Block, Jackson-Hewitt, and Liberty Tax Service can be adequate for simple, straightforward returns and they're relatively inexpensive. In 2009, the average fee per client at Liberty Tax Service was about $150; at H&R Block, it was $187. The not-for-profit National Consumer Law Center says national chains are less likely than independent storefront tax preparers to hit you with "junk" fees, such as application and document-prep charges. Preparers in franchise offices of the national chains have usually passed at least a several-week course, and the companies maintain that newcomers' work is reviewed by experienced supervisors.
• Free tax prep. If your household income was low to moderate for your community or you're 60 or older, you might not have to pay anything for tax help. The AARP's Tax-Aide service will pair you with trained volunteers who can handle Form 1040 and schedules A and B. For locations and dates of Tax-Aide events, go to www.aarp.org/money/taxaide.

Ask the essential questions

Before you sign up with any preparer, ask some basic questions about his or her background.

• What kinds of clients do you usually work with? Look for a preparer with clients similar to you.
• What are your credentials? Make sure that your prospective preparer has passed recent state or federal tests. (California, Maryland, and Oregon require licenses.) Look for seven to 10 years of experience, to ensure that your preparer has dealt with a variety of tax and economic situations. In a 2008 undercover investigation in Durham, N.C., and Philadelphia, the National Consumer Law Center found a scary lack of competence at some national storefront and independent offices. One preparer, for instance, didn't know what to do with IRS Form 1098, on which you report mortgage interest.
• Will you file my returns electronically? Filing electronically ensures fewer mistakes and helps speed your refund. Your tax preparer should be able to handle it for you.
• Can you give me a price quote? Tax preparers often say that they can't tell you what they'll charge until they determine which forms you'll need. But you can try to pin down the preparer by presenting last year's forms. Ask for a list of all fees. Avoid preparers who base their fee on a percentage of your refund.
• Do you provide audit help? CPAs and enrolled agents can usually represent you before the IRS. The national chains provide free advice to clients, but you might have to pay extra to have a person accompany you to an audit or talk to the IRS on your behalf.

Get organized

The earlier you get your tax act together, the better the result is likely to be. So try to see the preparer in February or early March. You'll also save time and money if you:

• Know your numbers. Collect all of your family's Social Security numbers and those for child-care providers. The fewer blanks you have to fill in later, the faster you can file and get your refund.
• Lose the shoe box. Don't show up with a shoe box of random financial statements. Buy an accordion folder and use each section for different categories: one for Form W-2s from jobs, another for Form 1099s showing interest and dividends, and so on. Bring your folder and official forms to your preparer; tally charity receipts and the like yourself beforehand. Also make sure you have copies of your prior-year federal and state tax forms.

Avoid these 3 ripoffs

Phony extra fees

Fees for "processing," "document preparation," and "service bureau" often are used to pad the preparer's bottom line. Ask for a fee list first and avoid preparers who refuse to give you one.

Refund-anticipation loans

Often hyped as "instant refunds," RALs are basically short-term loans, at annual interest rates that can reach almost 500 percent.

Refund debit cards

Your tax preparer might offer an "instant refund" on a debit card. But the cards can be loaded with fees. Liberty Tax Service's Visa Prepaid Debit Card, for instance, charges $1 per transaction or a monthly fee of $4.95 for unlimited transactions. Each ATM cash withdrawal costs $2.50.

Doing it yourself? Get some help.

If you're gutsy enough to do your own return, take advantage of all the help available. The IRS posts its instructions and forms, as well as tax tips and calculators, at www.irs.gov. Books such as "J.K. Lasser's Your Income Tax 2010" (Wiley, 2009) can be handy, too. The major tax-prep software programs, TurboTax ($25 to $100) and H&R Block at Home, formerly TaxCut ($20 to 80), are sold at stores on CDs or can be downloaded from the companies' sites. Click around for discounts at retailers like Amazon and for coupons.

You can also do your taxes online, storing your data on a secure server and then filing your completed return electronically. In many cases, you can do it free. For example, you can fill out and electronically file the basic Form 1040 and its simpler cousins, 1040A and 1040-EZ, at the IRS' Web site.

If your 2009 household adjusted gross income was no more than $57,000, you're eligible to use FreeFile from the IRS site. FreeFile lets you prepare and electronically file your federal return free using software from one of several online tax-prep services. It might cost something to prepare and file state returns.

A few online services—TaxAct and TurboTax Online Free Edition, for instance—also offer free, basic help for filing relatively straightforward federal returns.

This article appeared in Consumer Reports ShopSmart magazine.