Best & Worst States for Finding Tax Help

by John S Kiernan

WalletHub 2014 Best States for Tax HelpThere’s no shame in admitting it – many of us need a bit of help with our taxes.  Whether due to time restriction, numerical aversion or a simple lack of interest, we look upon mid-April with foreboding and then watch as procrastination inevitably makes way to a last-minute scramble.

Haste and disorganization are most likely the two primary reasons why over 2.6 million people made math errors on their tax returns in 2012, the most recent year for which such data is available.  So rather than spend the 22 hours the IRS says it takes for an individual to fill out their 1040, nearly 6 in 10 taxpayers hire a professional to do their returns.

But much like tax rates themselves, the accessibility, affordability and effectiveness of tax help differs significantly from state to state.  In order to determine where the relative sweet spots happen to be, WalletHub compared the 50 states as well as the District of Columbia in terms of seven key metrics – ranging from the number of accountants per 1,000 jobs to their average workload and mean hourly compensation.

More information about the significance of these data points as well as a comprehensive state-by-state rankings breakdown can be found below.

 

Main Findings

 

Rank

State Name

Accountants Per 1000 Jobs

(Category Rank)

Affordability of Tax Help

(Category Rank)

Average Refund Amount

(Category Rank)

1 North Dakota 8.17
(24)
133.71%
(2)
$1118.04
(2)
2 South Dakota 9.76
(9)
159.74%
(40)
$1141.71
(3)
3 District of Columbia 15.62
(1)
115.04%
(1)
$1469.35
(23)
4 Massachusetts 10.73
(4)
136.29%
(4)
$1595.91
(38)
5 California 9.34
(14)
144.93%
(14)
$1485.67
(24)
6 Colorado 13.49
(2)
151.57%
(22)
$1323.9
(12)
7 Hawaii 7.65
(28)
137.35%
(5)
$1324.33
(13)
8 Missouri 9.36
(13)
152.81%
(25)
$1464.05
(22)
9 Vermont 9.62
(11)
151.85%
(24)
$1182.32
(4)
10 Minnesota 8.79
(18)
138.92%
(8)
$1518.11
(29)
11 Montana 7.45
(29)
157.88%
(34)
$948.73
(1)
12 Washington 8.2
(23)
134.84%
(3)
$1400.23
(18)
T-13 Kansas 8.36
(21)
159.19%
(39)
$1304.24
(11)
T-13 South Carolina 7.22
(33)
151.47%
(21)
$1406.1
(19)
15 Maryland 9.83
(8)
145.34%
(15)
$1588.73
(37)
16 Oregon 7.01
(36)
139.29%
(9)
$1182.89
(5)
17 Alaska 8.24
(22)
140.02%
(10)
$1359.16
(15)
18 Nebraska 8.59
(20)
165.2%
(48)
$1283.36
(10)
19 Oklahoma 9.23
(16)
149.21%
(20)
$1665.09
(41)
20 Pennsylvania 9.64
(10)
158.18%
(35)
$1516.81
(28)
21 Iowa 6.74
(40)
157.71%
(33)
$1254.68
(8)
22 New Mexico 7.07
(35)
145.87%
(16)
$1387.83
(17)
23 New York 11.04
(3)
158.9%
(37)
$1812.5
(47)
24 Connecticut 9.51
(12)
138.43%
(7)
$2244.64
(50)
25 Wyoming 6.24
(47)
137.47%
(6)
$1258.89
(9)
26 Virginia 10.43
(6)
151.68%
(23)
$1578.81
(36)
27 Rhode Island 7.71
(27)
144.64%
(13)
$1786.72
(46)
28 Delaware 10.62
(5)
143.62%
(12)
$5242.31
(51)
29 Maine 6.66
(45)
148.95%
(18)
$1246.48
(7)
30 Florida 10.18
(7)
160.42%
(43)
$1448.7
(21)
31 New Jersey 9.02
(17)
156.7%
(31)
$1662.43
(40)
32 Arizona 6.94
(38)
141.23%
(11)
$1420.69
(20)
33 Michigan 7
(37)
156.61%
(29)
$1501.49
(26)
T-34 Alabama 7.83
(26)
160.15%
(42)
$1680.5
(42)
T-34 New Hampshire 6.68
(43)
146.93%
(17)
$1353.6
(14)
36 Idaho 5.58
(48)
159.13%
(38)
$1217.12
(6)
37 Wisconsin 6.68
(43)
157.32%
(32)
$1360.05
(16)
38 Nevada 6.7
(42)
149.18%
(19)
$1532.72
(32)
39 West Virginia 6.58
(46)
154.02%
(26)
$1528.1
(31)
40 Utah 7.96
(25)
160.73%
(45)
$1527.75
(30)
41 Kentucky 5.32
(49)
155.39%
(28)
$1555.45
(35)
T-42 Illinois 7.43
(30)
154.68%
(27)
$1686.59
(43)
T-42 North Carolina 7.43
(30)
162.9%
(46)
$1510.97
(27)
44 Ohio 7.21
(34)
156.66%
(30)
$1553.85
(34)
45 Louisiana 6.88
(39)
159.78%
(41)
$1658.49
(39)
46 Georgia 9.25
(15)
167.03%
(50)
$1717.85
(44)
47 Arkansas 4.89
(50)
165.59%
(49)
$1499.32
(25)
T-48 Indiana 6.71
(41)
160.49%
(44)
$1549.65
(33)
T-48 Tennessee 7.27
(32)
158.24%
(36)
$1883.08
(49)
50 Texas 8.64
(19)
164.72%
(47)
$1876.35
(48)
51 Mississippi 4.54
(51)
168.45%
(51)
$1763.01
(45)

Top 5 Help with Taxes
 

Ask The Experts:  Tax Help Tips

We’re all about community at WalletHub.  So, in the interest of helping the community better navigate tax season, we tapped our community of WalletGurus for expert advice on avoiding common mistakes, steering clear of scams, saving money and more.  In addition to WalletHub’s editors, the following experts helped contribute to the tips listed below.

  1. Seek Out Free Assistance – Qualified tax help need not come at a cost.  There are plenty of free resources that one can leverage, ranging from nonprofit clinics and online educational materials to credit counseling companies, accountants, and tax attorneys who offer free consultations.

    The Internal Revenue Service has also established community assistance stations in each state.    These so-called Volunteer Income Tax Assistance (VITA) locations “utilize trained individuals to provide free income tax assistance to qualifying taxpayers,” Dorata says.  Taxpayers who make less than $50k, speak limited English, have disabilities or are elderly generally qualify.

    You can find the closest Vita location by visiting the IRS website.

  1. Check Your Preparer's Credentials – There’s a reason why four states have regulations for independent tax preparers:  scams and fraud are a viable concern.  In fact, the IRS recommends that taxpayers exercise the same level of care choosing a tax preparer as they would a doctor or lawyer because “when the IRS detects a fraudulent return, the taxpayer — not the return preparer — must pay the additional taxes and interest and may be subject to penalties.”

    So, what should you look for? “All authorized tax preparers will have an IRS-issued Preparer Tax Identification Number (PTIN),” Knight says, “so make sure it is included with the tax preparer’s signature on your tax return.”  It woulnd't hurt to do a bit of background research online either.  Finally, trust your gut.  If it sounds too good to be true, it probably is.

  1. Review Your Preparer's Work – Regardless of whether you pay someone to prepare your return, do it yourself or visit a VITA location, it’s important that you review the final product before signing your name and filing.

    “One of the biggest mistakes a taxpayer makes when having their return prepared by a paid return preparer is to not look over and understand what has been reported on their returns,” Chen says.  “By signing the return, they are declaring under penalties of perjury that the return is true and correct.”

  1. File Early & Electronically – Filing early not only alleviates stress, it also effectively shortens tax season for those who do it.  The IRS generally will either accept your return or send it back to you for corrections within 24 hours (eliminating back-and-forth through certified mail) and will issue refunds on an expedited timetable as well.

    Early filing will also limit your exposure to fraud-related headaches.  “If someone steals your identity to file a return in your name and claim a refund, you will not be able to file your own return until the identity theft issue is resolved,” Christian says.  “If you are due a refund, you may have to wait up to a year to get your account cleared.

  1. Don’t Count on Your Refund – The experts that we consulted believe this year’s government-shutdown-based tax season delay will have the most profound impact on low-income taxpayers, as they may be counting on an early refund check to pay for basic living expenses.   “It’s hard to predict how much of a delay there will be in refund payments,” Puckett says, “but for someone living paycheck-to-paycheck, even a few weeks’ delay could cause significant disruptions.”

    While it’s always best to save your tax refund, if at all possible, there are a few steps that you can take if you’re counting on an IRS payday that gets delayed.  For starters, you can begin scrimping now.  Even eliminating Starbucks from your morning routine, for example, will give you a bit of extra cash to work with until your refund comes through.  You could also open a new credit card to bridge the gap, but it’s very important that you absolutely avoid charging more than you’ll be able to pay off in full when you get your refund if you decide to go that route.

  1. Leverage an IRA – The investment taxation experts that we consulted universally recommended the use of tax-deferred and tax-exempt investment vehicles, such as a 401(k), IRA, Roth account, or municipal bond.  “You will almost always end up wealthier in a tax-deferred retirement account,” Geisler says.  “Consumers should contribute the maximum allowable under federal income tax law each year to minimize the taxes they pay on their investments.”
  1. Use Losses to Your Advantage – If you itemize your deductions, don’t forget to subtract realized capital losses, gambling losses, mortgage interest, and any interest that you’ve incurred on business loans and lines of credit throughout the year.  All are deductible to varying extents.

    In fact, failure to take advantage of capital gains is one of the biggest reasons that people overpay on their investment-related taxes, according to Mazur.  “Generally, if you have sold an investment at a loss, you should try to sell an appreciated investment at a gain so you can benefit from the loss this year,” she says.  “However, be sure to anticipate your tax rate in the following year because in some circumstances it might be better to defer taking your losses.”

  1. Don’t Forget Income from Summer Jobs – Young people who work in addition to attending school, whether it’s year-round or just during the summer, have tax liabilities too.  Much will ultimately depend on how much a student earned throughout the year, whether they were classified as an employee or contractor, and how withholding was handled.  You or your tax preparer must therefore get to the bottom of those matters, but it’s important that you make sure to include your child in the process in order to make it a learning experience.

    “Even if they have someone else file their taxes, they should try to fill out the forms on their own,” Hicks says.  “It is a great way to know if the tax preparer is doing it right, as well as allowing students to more fully understand how their income and expenses get handled on a tax return.”

  1. Don’t Mess with Dependents – Don’t try to claim dependents that you don’t have.  It’s one of the most common reasons people are hit with a tax penalty, according to Schumacher, who says that it can also lead to negative tax adjustments like the denial of the Earned Income Tax Credit.
  1. Don’t Panic If Audited – The best way to approach tax season is with the expectation that you will be audited.  Such a mindset will encourage you to play by the book and gather the proper documentation for the information that you report.  As long as you’ve been as honest as possible throughout the process, you shouldn’t have too much to worry about.  That’s important to note because taxpayers too often lose their senses when the word “audit” is mentioned.

    “Taxpayers who fear an IRS audit often fall prey to identity theft because they forget to take the normal steps to safeguard their identities,” Knight says.   “Victims often willingly turn over personal information when an impersonator of an IRS agent calls saying they owe money, and then threatens them with jail time, the loss of their business or driver’s license or deportation if they are a recent immigrant.”

 

Methodology

Local differences in the accessibility, affordability and effectiveness of local tax help are somewhat difficult to quantify, and while none of the metrics that we used in this report are perfect in their own right, they do collectively illustrate the general tenor of the local landscape.

Number of Accountants Per 1,000 Jobs – Weight: 1

This metric speaks to the accessibility/prevalence of qualified tax help within a given state.  The more accountants there are, the better off taxpayers should be.  Even if all of the accountants in a given area are not focused on individual tax preparation, a large number of qualified tax professionals in a given area speaks well to the accessibility of helpful information – whether formal or informal – as well as the vibrancy of the local tax community.

Number of Accounting Job Openings Per 100,000 inhabitants – Weight: 0.5

A state with a high number of accounting job openings would seem to have tax needs that are not currently being met.  For the time being at least, such areas are not great places to find tax help.  Given that the data used to construct this metric likely includes non-tax accounting job openings, we assigned it only a half weight.

Affordability of Tax Help – Weight: 1

This metric reflects the ratio between the average hourly rate for accountants and auditors in each state and the average wage in each state.

Number of Returns Filed Per Accountant – Weight: 0.5

The metric speaks to the workload of local accountants.  Tax preparers who have fewer returns to work on are able to be more attentive to each case and are therefore less likely to make errors and omissions.  Given that the number of accountants used to construct this metric includes accountants of all specialties, we assigned it only a half weight.

IRS Refund Amount Per Tax Filer– Weight: 1

You don’t want to get a tax refund.  It indicates that you’ve been overpaying, and you’d probably prefer not to give the IRS even a temporary interest-free loan.  Taxpayers in states with the highest average refunds therefore do not seem to be receiving the proper tax guidance.  Whether that is due to relatively less effective tax professionals or taxpayer cavalerism, this metric did not take that into account.  But relatively high refund amounts don’t ultimately speak well to the local tax help landscape in a “where there’s smoke, there’s fire” sense, as the areas with the highest refunds wouldn’t seem to be minding their P’s and Q’s quite to the level of low-refund states.

Percentage of Paid Returns – Weight: 0.5

A high number of paid returns indicates cheap, accessible and effective tax help.  However, given that state-by-state wealth disparities and differences in tax code complexity stand to influence the rate of paid returns, we assigned this metric only a half weight.

State Tax Preparer Regulations – Weight: 0.5

Four states (California, Oregon, Maryland and New York) have established regulations for independent tax preparers who are not otherwise qualified as CPAs, attorneys, banking officials or “qualified agents.”  Given the prevalence of scams and fraud in the tax space, this report viewed those states favorably.  However, we assigned this metric a half weight since the use of such regulations can currently be measured only in a binary sense.

 

Source:  The data used to conduct this report is courtesy of the Internal Revenue Service, the U.S. Census Bureau, Indeed.com, and the U.S. Department of Labor Statistics.

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John Kiernan is Senior Writer & Editor at Evolution Finance. He graduated from the University of Maryland with a BA in Journalism, a minor in Sport Commerce & Culture,…
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