The United States operates one of the most expansive tax reporting and disclosure systems in the world. As a result, the IRS requires precise reporting of income, deductions, and credits, along with supporting documentation.  

Deadlines are also strictly enforced. If you miss the filing date or submit an inaccurate tax return, you may face significant penalties. 

That’s why tax preparation is about more than completing a form once a year. It’s a process that demands care, accuracy, and planning. 

At its core, tax preparation means accurately reporting financial activity to tax authorities while meeting strict legal, procedural, and documentation requirements.

Once a taxpayer moves beyond a simple wage-and-W-2 situation and adds business income, capital transactions, partnership interests, or cross-border activity, the margin for error becomes much smaller.

Professional tax preparation is designed to handle that added complexity by following a clear, end-to-end process. 

This includes gathering and organizing records, determining which forms and schedules are needed, applying up-to-date tax rules, and ensuring that every number reported can be supported with documentation.

For clients with business operations, investments, foreign accounts, or multi-entity structures, the process often expands to include multiple schedules and additional disclosure requirements. 

At that stage, preparation requires deeper technical expertise, close coordination, and a perspective that considers both U.S. and international tax consequences.

This guide walks through what that work actually involves, what tax authorities look for, and how a well-prepared return can reduce risk, support compliance, and give you a clearer picture of your overall position.

Tax Preparation and Tax Advisory Service

Tax preparation may involve federal, state, and local tax returns, depending on the taxpayer’s filing obligations. Its scope is centered on reporting and compliance for a specific tax period.

In contrast, tax advisory services focus on analyzing tax and financial issues, developing solutions, and providing recommendations to individuals and businesses. 

A tax advisor works with clients to translate personal or organizational goals into structured, tax-aware action steps intended to optimize overall tax outcomes.

Experience in tax preparation and tax advisory services may involve preparing returns and providing guidance across a wide range of tax, financial, and transactional matters, including:

  • Federal and state individual income tax returns
  • Federal and state corporate income tax returns
  • Evaluation of tax effects related to income, deductions, contributions, major purchases, and investments
  • Representation in tax negotiations and disputes with the Internal Revenue Service
  • Trade and customs services, focused on compliance while managing, reducing, or deferring customs duties

The sections that follow explain each concept in greater detail.

What Is the Meaning of Tax Preparation?

Tax preparation is the process of accurately completing and filing tax returns using the forms, instructions, and filing systems established by the IRS. 

Tax preparation usually begins with gathering and organizing paperwork, including income statements, records of digital asset activity, prior-year returns, and other supporting documents, so everything is ready before the return is filed.

What Is Tax Planning?

Tax planning involves applying tax law strategically to manage and minimize overall tax liability. 

This process often focuses on managing a taxpayer’s effective tax bracket by controlling the timing of income recognition, expenses, and major purchases. 

It may also involve selecting appropriate retirement vehicles, coordinating investment strategies, and aligning financial decisions with applicable tax rules.

Instead of a one-time exercise, tax planning is an ongoing process that integrates tax considerations into financial decision-making throughout the year. This approach helps taxpayers address potential tax exposure proactively rather than react after the fact.

Common year-round tax planning considerations include:

  • Organizing tax records
  • Evaluating filing status
  • Understanding adjusted gross income (AGI)

AGI is a key driver of tax liability and credit eligibility. Many tax planning strategies focus on lawful ways to reduce AGI during the year, which may lower effective tax rates or unlock additional tax benefits.

  • Reviewing tax withholding and estimated payments
  • Updating personal information
  • Planning for retirement contributions

Contributions to certain retirement plans, such as employer-sponsored plans or traditional IRAs (individual retirement accounts), may reduce taxable income while supporting long-term financial goals.

What Are Tax Preparation Fees?

Tax preparation fees are the costs incurred for professional assistance in preparing tax returns and related schedules. These charges are commonly known as legal or professional fees.

What Is the Average Tax Preparation Fee?

Professional tax services typically range from $500 to $5,000, while online tax preparation software generally costs $100 to $350.

That said, eligible taxpayers can access free tax-filing assistance through programs such as the IRS-sponsored Volunteer Income Tax Assistance (VITA) program.

It’s important not to view costs in isolation. Lower-priced options often offer limited review and oversight, which can increase the risk of filing errors, improper forms, or missed reporting obligations. 

In more complex situations, these issues can lead to penalties, additional tax exposure, and prolonged interactions with the IRS or state tax agencies.

Determinants Affecting Tax Preparation Fees

Tax preparation fees vary based on multiple factors, including return complexity, documentation quality, and the preparer’s qualifications. 

The Level of Expertise and Qualification of the Tax Preparer

Costs vary based on the preparer’s level of expertise. CPAs (Certified Public Accountants) and Enrolled Agents generally charge more than franchise-based firms or volunteer services. 

This premium reflects their deeper technical know-how and ability to provide more individualized, situation-specific guidance.

The Level of Tax Document Organization and the Health or State of Your Taxes

The condition of a taxpayer’s records directly affects cost. Disorganized receipts and incomplete documentation may increase preparation time, resulting in higher fees. 

In contrast, well-organized records require less review and management, often reducing overall tax preparation costs.

Area of Residence or Business Operation

Tax preparation service fees can vary widely by location. 

A 2025 study by the National Association of Tax Professionals found that regional economic conditions influence tax preparation costs. For example:

  • Urban markets tend to command higher fees than rural areas across all regions.
  • Preparers in the Northeast typically report higher average fees for itemized returns.
  • The Midwest generally reflects some of the lowest average preparation fees nationwide.

What Is Included in Tax Preparation Fees?

A standard tax preparation fee may include:

  • Base fee: Covers preparation of a standard tax return, including an initial intake and required core forms
  • Additional forms: Returns that require supplemental schedules, such as Schedule C for business income, typically incur additional fees.
  • Consultation fees: When services include tax planning or advisory, some preparers charge an hourly consultation rate that varies based on experience and the scope of guidance provided. 

That said, many tax preparation companies offer prospective clients a free consultation.

What Are Inappropriate Tax Preparation Pricing Methods?

The U.S. Treasury Department prohibits certain pricing models for tax preparation.

Under Section 10.27 of Circular 230, practitioners are generally prohibited from charging contingent fees for services connected to matters before the IRS. 

A contingent fee is any fee that depends, in whole or in part, on whether a tax position avoids IRS challenge or is ultimately sustained by the IRS or through litigation.

Contingent fees are permitted only in limited circumstances, including:

  • Representation during an IRS examination or challenge after the taxpayer has received a written notice
  • Filing or amending a tax refund or credit claim when the amount is based on an IRS determination
  • Matters involving judicial proceedings before the IRS

What Happens in the Event of a Tax Preparation Fee Dispute?

A dispute may arise over the fees charged for preparing your tax returns. Resolving the issue may require pursuing a local court process or negotiating a settlement, depending on the circumstances.

Is It Worth Paying for Tax Preparation?

It depends on the complexity of your tax situation. 

For taxpayers with straightforward filings, such as a single W-2 income source and no business, investment, or foreign activity, software platforms like TurboTax may be sufficient.

That said, as financial circumstances become more challenging, the value of working with a tax professional increases.

Errors in complex filings can be costly, potentially resulting in penalties, additional tax, and interest. This makes accuracy and proper analysis especially important.

Here are some situations where you might benefit from engaging a tax preparer:

  • Self-employment or multiple income streams
  • Ownership of a business or rental property
  • Foreign assets, foreign income, or financial disclosure requirements
  • Significant life or financial events, such as divorce, the sale of a business, or large asset transactions
  • The need to evaluate eligibility for credits, deductions, or elections that require technical analysis

In addition to preparing returns, a tax professional may assist with related matters, including coordinating bookkeeping, addressing tax questions throughout the year, and planning for ongoing compliance.

What Is a Tax Preparer?

A tax preparer is any individual or professional who is paid for preparing, or assisting in the preparation of, federal tax returns on behalf of another person or entity. 

Under IRS guidance, paid tax preparers may only prepare tax returns for compensation if they have a Preparer Tax Identification Number (PTIN) 

Tax preparers may be credentialed, such as Certified Public Accountants (CPAs), Enrolled Agents (EAs), or attorneys, or non-credentialed. 

Regardless of credentials, all paid tax preparers are subject to IRS oversight, including registration, identification, and compliance requirements.

What Does a Tax Preparer Do?

There are several types of individuals who prepare tax returns, including tax return preparers, Enrolled Agents, Certified Public Accountants (CPAs), attorneys, and others who do not hold professional credentials. 

If you choose to work with a paid preparer, it’s important to make the selection carefully. A paid tax preparer is:

  • Primarily responsible for the substantive accuracy of the return
  • Required to sign the return and provide a valid Preparer Tax Identification Number (PTIN)

Key Hard Skills for What Tax Preparers Do

  • Preparing federal tax returns accurately
  • Ensuring substantive accuracy of returns
  • Reviewing and interpreting tax documents
  • Applying IRS forms, instructions, and rules
  • Filing tax returns electronically (if authorized)

Key Soft Skills for Tax Preparers

  • Communication
  • Explains complex tax ideas in plain language
  • Listens well
  • Speaks clearly to clients, teams, and executives
  • Creates space for questions and solutions
  • Emotional Intelligence (EQ)
  • Stays calm under pressure 
  • Reads the room
  • Adjusts tone as needed 
  • Builds trust
  • Handles conflict without escalation
  • Strategic Thinking
  • Understands the business, not just the tax code 
  • Anticipates law changes 
  • Spot risks early
  • Aligns tax decisions with long-term goals
  • Change Management
  • Adapts quickly to new laws and tools
  • Embraces technology
  • Improves processes and keeps learning as rules evolve

Tax Preparation Areas of Expertise

Tax preparers may specialize in specific fields or industries, depending on the type of clients and filings they serve. 

The following sections outline four common areas of expertise within tax preparation.

Tax Return Preparer

A tax return preparer is any individual who, for compensation, prepares tax returns or claims for refunds on behalf of others. 

This includes those who personally prepare returns, as well as those who employ or supervise others to do so. 

Anyone who makes a substantial contribution to the preparation of a return or refund claim is also treated as a tax return preparer.

In contrast, providing only clerical or mechanical assistance, such as typing or data entry, does not constitute tax return preparation.

There are no federal education or certification requirements that apply universally to paid tax return preparers. That said, all tax preparers are subject to IRS registration and compliance rules.

Accounting and Common Accountant Job Titles

These professionals assist individuals and organizations with tax preparation. They may also provide related services such as audits, investment oversight, and financial planning. 

Tax accountants commonly manage tax matters for larger businesses and corporations, where filings and compliance requirements are more complex.

Job titles include: 

  • Tax advisor
  • Junior tax advisor
  • Senior tax advisor
  • Principal tax consultant

Bookkeeping and Common Job Titles

Bookkeepers often support accountants and tax preparers by maintaining and organizing financial records used in reporting and tax compliance.

Their responsibilities typically include recording and tracking financial transactions, reconciling accounts, preparing internal financial reports, and performing routine accuracy and compliance checks. 

Common job titles include:

  • Junior Bookkeeper
  • Senior Bookkeeper
  • Accounting Clerk
  • Accounting Assistant

Credentialed vs Non-Credentialed Tax Preparers

Any tax professional who holds a valid PTIN can prepare federal tax returns. That said, preparers vary significantly in training, technical depth, and scope of authority.

One of the most meaningful distinctions is representation rights, which describe how a preparer may act on a client’s behalf before the IRS.

  • Enrolled Agents (EAs), Certified Public Accountants (CPAs), and attorneys have unlimited representation rights. 

They may represent clients in all IRS matters, including audits, payment and collection issues, and appeals, even if they did not prepare the original tax return.

  • Non-credentialed preparers have limited representation rights. They may represent clients only for returns they personally prepared and signed, and only before certain IRS personnel, like revenue agents or customer service representatives.

Customer service representatives include the Taxpayer Advocate Service, an independent organization within the IRS that offers free help to taxpayers.

What Kind of Tax Preparer Do I Need?

Here are different types of tax preparers to help guide your decision:

Enrolled Agents (EAs)

  • Licensed directly by the IRS
  • Passed an IRS exam covering individual, business, and tax planning topics
  • Can prepare returns and represent you before the IRS
  • Must complete regular continuing education

Certified Public Accountants (CPAs)

  • Licensed by the state
  • Must pass the CPA exam and meet education and ethics standards
  • Can prepare returns, give tax advice, and represent you before the IRS
  • Some CPAs specialize in taxes

Tax Attorneys

  • Licensed attorneys with legal training
  • Can handle tax preparation, planning, audits, appeals, and court cases
  • Can fully represent you before the IRS

Annual Filing Season Program (AFSP) Participants

  • Complete IRS-approved continuing education
  • Can prepare returns
  • Have limited IRS representation rights (only for returns they prepared)

PTIN Holders (Uncredentialed Preparers)

  • Have an IRS preparer identification number only
  • Can prepare tax returns
  • Cannot represent you before the IRS
  • Typically best suited for simple tax returns

Tax Prep Documents

The documents required for tax preparation vary based on your specific circumstances. To help you prepare for a tax appointment or self-filing, the following sections outline the forms you may need to gather and bring.

Personal Information

Tax Identification Numbers (TINs) are required for tax preparation. All taxpayers should have the following information available:

  • Your Social Security number or tax identification number
  • Your spouse’s full name, Social Security number or tax identification number, and date of birth, if filing jointly
  • An Identity Protection PIN, if issued by the Internal Revenue Service for you, your spouse, or a dependent
  • Foreign residency or reporting information, where applicable

Dependent(S) Information

Parents and caregivers should gather the following information when preparing to file:

  • Dates of birth and Social Security numbers or tax identification numbers for dependents
  • Childcare records, including the provider’s tax identification number, where applicable
  • Income details for dependents and for other adults living in the household

If you are the custodial parent, you may use Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, to:

  • Release your claim to a child so the noncustodial parent may claim the child for tax purposes
  • Revoke a prior release of your claim to the child

Sources Of Income

The income documents you need depend on the types of income you received during the year. Employment, business activity, investments, rentals, and foreign sources each carry specific reporting requirements and corresponding forms. 

Here are the most common income documents you may need for tax preparation:

Employed

  • Form W-4 (Employee’s Withholding Certificate)

An employee completes Form W-4 so their employer can determine the amount of federal income tax to withhold from each paycheck.

  • Form W-2 (Wage and Tax Statement)

An employer issues Form W-2 at year-end to report an employee’s wages and the federal, Social Security, and Medicare taxes withheld during the year.

Unemployed

  • Form 1099-G, Certain Government Payments

Federal, state, or local government agencies issue this form to report unemployment compensation payments.

Self-employed

Self-employed taxpayers file Form 1040, U.S. Individual Income Tax Return (or Form 1040-SR for qualifying seniors). Business activity is then reported using the appropriate schedules:

  • Schedule C (Form 1040 or 1040-SR), Profit or Loss from Business: Used to report expenses and income from a sole proprietorship or single-member business. 
  • Schedule F (Form 1040), Profit or Loss from Farming: Used instead of Schedule C for farming income and expenses.
  • Schedule SE (Form 1040 or 1040-SR), Self-Employment Tax: Used to determine the tax due on net earnings from self-employment

If the taxpayer is a partner in a partnership, income is typically reported through:

  • Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc.: Reports the individual’s share of partnership income, deductions, and credits, which must be included on the individual’s return

Rental Income

Use Schedule E (Form 1040), Supplemental Income and Loss,  to report income or losses from rental real estate, royalties, estates, S corporations, trusts, and residual interests in real estate mortgage investment conduits (REMICs).

Retirement Income

Retirement income may include Social Security benefits and distributions from annuities, retirement or profit-sharing plans, insurance contracts, IRAs, and similar arrangements. 

Depending on the source and the taxpayer’s overall income, this income may be fully taxable, partially taxable, or non-taxable.

Savings and Investments or Dividends

Banks and other financial institutions use Form 1099-DIV, Dividends and Distributions, to report dividends and other distributions to taxpayers and the IRS.

Other Income and Losses

Other income refers to taxable income that does not have a specific line item on Form 1040. This income is reported on Schedule 1 (Form 1040), Additional Income and Adjustments to Income.

Types of Deductions

When deciding which deductions to claim, taxpayers generally choose the approach that results in the lowest overall tax liability, given their specific financial circumstances.

Here’s an overview of deductions to help with tax preparation:

Home Ownership

Taxpayers use Form 1098, Mortgage Interest Statement, to report $600 or more in mortgage interest received during the year in the course of a trade or business from an individual borrower, including a sole proprietor.

Charitable Donations

Individuals may deduct qualified contributions of up to 100% of adjusted gross income, while corporations may deduct up to 25% of taxable income. Any excess amount may be carried forward to a future tax year.

To qualify, the contribution must be:

  • A cash contribution
  • Made to an eligible organization
  • Made during the applicable tax year

Contributions of non-cash property do not qualify for this treatment.

Medical Expenses

If you itemize deductions on Schedule A (Form 1040), Itemized Deductions, you may deduct qualifying medical and dental expenses paid for yourself, your dependents, and your spouse to the extent those expenses exceed 7.5% of your AGI for the tax year.

Educational Expenses

Use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), to calculate and claim education credits based on qualified education expenses paid to an eligible postsecondary educational institution.

Health Insurance

Taxpayers may be eligible for deductions for health insurance, including medical, vision, and dental coverage, and for long-term care coverage for themselves and their dependents.

To calculate the allowable self-employed health insurance deduction, use Form 7206 and report the eligible amount on Schedule 1 (Form 1040), Additional Income and Adjustments to Income, line 17.

Childcare Expenses

You may be eligible for the child and dependent care credit if you paid care expenses for a qualifying individual so that you (and your spouse, if filing jointly) could work or actively seek employment. 

In general, the credit does not apply to taxpayers who file as married filing separately.

K-12 Educator Expenses

Eligible educators may deduct up to $300 in unreimbursed classroom-related expenses ($600 if both spouses are married and filing jointly, limited to $300 per spouse).

Qualifying expenses include costs for:

  • Professional development
  • Books
  • Classroom supplies
  • Computer equipment and related software or services
  • Supplemental instructional materials used in the classroom

State and Local Taxes

In general, you may claim an itemized deduction, subject to applicable limits, for certain state, local, and foreign taxes you pay, even if the taxes were not incurred in connection with a trade, business, or for-profit activity. These taxes are deductible in the year they are paid.

Deductible tax categories include:

  • State and local income taxes
  • State and local general sales taxes elected in place of income taxes
  • State and local personal property taxes

Retirement and Other Savings

You may be eligible for a tax credit for making qualifying contributions to an IRA or an employer-sponsored retirement plan. In addition, designated beneficiaries may qualify for a credit for contributions made to an Achieving a Better Life Experience (ABLE) account.

The ABLE Act is a law that helps people with disabilities by allowing tax-free savings accounts to cover qualified disability expenses.

Federally Declared Disaster

In general, if you suffer losses from a federally declared disaster, you can deduct personal casualty losses related to your home, household items, or vehicles on your federal income tax return.

Frequently Asked Questions

Why do people go to tax preparers?

Taxpayers rely on paid preparers to manage the technical demands of filing, particularly where accuracy, documentation, or regulatory compliance is critical.

What can I expect from a tax preparer?

You can expect a paid tax preparer to:

  • Prepare and file your tax return accurately
  • Review and manage records and receipts
  • Follow IRS rules
  • Sign the return
  • Include their preparer tax identification number (PTIN)

How can I check a tax preparer’s credentials?

You can verify a tax preparer’s credentials by checking whether they are a CPA, an Enrolled Agent, or an attorney, and by confirming their PTIN status using IRS tools.

The IRS maintains a searchable directory of tax pros with credentials and select qualifications that you can use to locate preparers in your area who hold IRS-recognized credentials.

Is a tax preparer the same as an accountant?

No. A tax preparer is anyone who is paid to prepare or assist in preparing a federal tax return, while an accountant (such as a CPA) is a credentialed professional who may offer broader accounting services and may also prepare federal and state returns.

What is an Electronic Filing Identification Number (EFIN)?

An Electronic Filing Identification Number (EFIN) identifies firms that have completed the IRS e-file application and been approved as authorized e-file providers. 

After the application is submitted and a suitability review is completed, the Internal Revenue Service issues an acceptance letter that includes the firm’s EFIN. An EFIN is required to file federal tax returns electronically.

What are the common tax forms and types of tax returns prepared by a tax preparer?

Tax preparers commonly prepare individual, business, and informational tax returns using standard IRS forms, including: 

  • U.S. Individual Income Tax Return (Form 1040)
  • U.S. Nonresident Alien Income Tax Return (Form 1040-NR)
  • Treaty-Based Return Position Disclosure (Form 8833)
  • Foreign Tax Credit (Form 1116)
  • Information Return of U.S. Persons With Respect To Certain Foreign Corporations (Form 5471) 
  • Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business (Form 5472)
  • Financial Crimes Enforcement Network (FinCEN Form 114)
  • Statement of Specified Foreign Financial Assets (Form 8938)
  • U.S. Return of Partnership Income (Form 1065)
  • Return of U.S. Persons With Respect to Certain Foreign Partnerships (Form 8865)
  • Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts (Form 3520)
  • Annual Information Return of Foreign Trust With a U.S. Owner (Form 3520-A)What software do tax preparers use?

The IRS does not endorse or name specific tax software brands, but it confirms that tax preparers commonly use IRS-authorized electronic filing (e-file) software to prepare and submit tax returns.

How do I keep up with new tax law changes?

Taxpayers and tax professionals can stay current by following IRS official guidance, updates, and publications, including IRS news releases and tax tips.

What should I do if I have a complaint about a tax preparer?

  • If you received a notice from the IRS:

Follow the instructions to submit Form 14157-A (Tax Return Preparer Fraud or Misconduct Affidavit) and Form 14157 (Complaint: Tax Return Preparer). 

Include a copy of the IRS notice along with both forms and any supporting documentation, and submit them to the address listed in the notice.

  • If you suspect identity theft:

Complete Form 14039 (Identity Theft Affidavit) and follow the submission instructions on page 2 of the form.

  • To report suspected tax law violations by an individual, a business, or both:

Submit Form 3949-A (Information Referral) to the address listed on the form, as directed by the Internal Revenue Service.