What Does a Tax CPA Do And What Are Their Credentials?
Tax advisors are also known as an enrolled tax agent or a certified public accountant. A Tax CPA is a professional that specializes in complex US tax code. Tax CPAs use their expertise to help clients minimize either their individual or business tax liability.
A certified public accountant shares many of the same attributes as an enrolled tax agent, but with a key distinction. Enrolled agents are licensed by the federal government and a CPA is licensed by the state where they do business. A CPA must complete 150 hours of undergraduate and/or graduate school study. They must also complete a CPA exam given by the American Institute of CPAs.
A CPA must keep current with tax laws to maintain a license in their respective state. The CPA exam is a rigorous process over several days, including many facets of financial and tax expertise. After they are licensed, CPAs also must follow continuing education requirements. You can learn more about the standards that CPAs must follow by checking out the American Institute of CPAs (AICPA).
Why Do You Need a Tax Advisor?
Ultimately, tax advisors possess the skills and proficiency to understand the US tax code, which can be confusing for businesses and the average taxpayer. To put this understanding into perspective, the actual size of the US tax code is 2,600 pages long. Added explanations and past tax statutes push that number up to 70,000 pages long. Among those pages and explanations are the tax breaks and liabilities taxpayers likely will not recognize. An investment in an experienced tax planner can help save you money in the long run.
A tax planner can also advise individuals and businesses when it comes to tax-advantaged financial decisions in key areas like retirement, estate planning, investment management, and small business planning.
Major life events like buying a home can also impact your tax liability. Consulting with a professional tax advisor will help you identify scenarios in which you could be leaving money on the table while preparing your taxes.
How to Vet and Select a Tax Professional
There are a few things to consider when selecting a Tax Accountant:
- How the advisor approaches the tax preparation process. Your tax advisor must have experience with issues relevant to your financial situation.
- Whether you feel comfortable with the tax advisor.
- How the advisor structures her fees.
Schedule an initial meeting if you are not able to answer questions specific to your situation with online research. Your comfort and confidence in a tax advisor’s approach to providing tax advice matters. Here are a few specific factors to consider.
First, try to identify a tax advisor who operates with ethics and integrity. Be sure to check to see if they have been subject to any complaints, disciplinary actions, or other ethical infractions. When meeting with an advisor, lookout for unrealistic promises, like a certain refund amount. Especially when the tax advisor has not looked at your returns. If the advisor suggests taking an aggressive approach that is not grounded in your financial situation, ask questions. Be sure to keep asking questions until you have a full understanding.
Note that having a tax advisor prepare your returns does not remove your liability for accuracy. An advisor that takes an improper position on a tax return will face consequences, but it is your return, so you can too. The right tax advisor for you will provide more value than filling out your returns. He or she should help you to structure your finances in an optimal way from a tax perspective.
Not every tax advisor has expertise with every nuance of the tax code. Make sure that your tax advisor has experience with your financial and tax situation. Here are certain common issues that every good advisor should know:
- How to maximize the value and efficacy of your charitable contributions
- How to weigh the tax tradeoffs between renting and owning a home
- How to save money or gift money to family members.
For uncommon situations, you’ll want a tax advisor with specific experience. Here are some special situations to take into consideration:
- You own a business or are self-employed
- You work for a startup and own a significant number of stock options
- A portion of your income is reported on a K-1
You will be best served by a tax advisor who has experience working with uncommon situations if they apply.
Finally, securing your personal information is a priority. Thus the inputs for your taxes is some of the most sensitive information you have. With the risk of data breaches, a good tax advisor will take steps to safeguard your information. Be sure to ask your tax advisor how they store your personal information. As well as what methods they use to communicate with you about sensitive topics. It is also a good idea to ask if the tax advisor has ever been subject to a data breach. If so, be sure to ask what steps they are taking to protect themselves against a future breach.
What Are The Advantages of Hiring A Tax CPA?
For a small business, an accountant may fill some bookkeeping needs. Yet, there are specific circumstances in which using the services of a CPA has advantages. Here are some key areas where hiring a Tax CPA for your business can make a big difference.
Tax Law Compliance
Almost all CPAs are more familiar with tax laws than bookkeepers. Knowledge of the tax code is a big part of a CPA’s licensing exam and many CPAs take tax courses every year to keep up to date on the Tax Code. The designation of “accountant” does not provide assurance of certification. Nor does it give the accountant the ability to represent you before the IRS. Bookkeepers are classified by the IRS as “unenrolled preparers.”
The IRS requires all tax preparers to have a preparer tax identification number. The IRS also distinguishes between the following:
- Preparers who are enrolled, agents
- Other unenrolled preparers
Bookkeepers fall into this last category. An unenrolled preparer’s ability to represent a client in a tax matter before the IRS is very limited.
CPAs can offer a more detailed and thorough analysis than bookkeepers and they advise on tax and financial matters. Note that a “CPA” designation does not mean an individual will offer the best advice. However, a CPA is more prepared and puts his or her license on the line by giving tax and financial advice.
As mentioned previously, IRS Audits are probably the biggest reason to use a Tax CPA for your business. A CPA is eligible to represent you before an IRS audit. If an audit is a concern for your business be sure the person you hire has full authority to represent you in an audit and to execute claims on your behalf.
Bookkeepers can do the routine work and they can complete tax returns. However, CPAs can analyze the work, represent you at a tax audit, and help you make more high-level business and tax decisions.
Finding Your Next Tax CPA
Hiring a tax advisor may take a few steps in vetting however the investment can potentially save your business resources in the long run. Not to mention, keep you in compliance with tax standards so you can focus on running your business.
Johanna is an experienced executive who can provide the tax services your personal and business needs. Johanna’s services include the following and much more:
- Budget, forecast and financial analysis
- Financing strategies and implementation
- Revenue management and cost of sales
- Board reports and presentations
- Bookkeeping and financial system setup and operation