Deciding what type of tax professional (if any) is best suited for you can be a challenge. Learn the differences between various tax preparers, so you can determine which one best suits your specific tax needs.
What Is a CPA?
Certified Public Accountants, or CPAs, are accounting professionals who have met education and professional requirements and have passed the four-part Uniform CPA Exam. The credential is granted by states, so education and professional requirements vary accordingly. Nevertheless, all CPAs are typically required to do the following:
Complete 150 hours of higher education with an accounting and business concentrationGain professional accounting experience (duration varies by state and jurisdiction, usually one to two years)Complete continuing professional educational (CPE) requirements to maintain credentials in the field (the duration varies by state and jurisdiction, usually 40 hours per year)
Because CPAs must demonstrate broad financial knowledge to earn the designation, they tend to work in a variety of settings. CPA specialties include auditing financial records, governmental accounting, financial planning and analysis, litigation services, and tax preparation. CPAs hold the right to represent any kind of taxpaying individual or entity on any tax matter before the Internal Revenue Service (IRS). “CPAs compile, review, and audit financial statements in addition to conducting tax work,” Robert Premselaar, CPA and senior manager at Mach & Associates, told The Balance in a phone interview. “Business clients in particular often prefer to entrust their tax returns to CPAs, who serve as financial guides and have a holistic understanding of their business operations.” Business owners often must file tax estimates for their designated business, in addition to filing their personal taxes.
What Is a Licensed Tax Preparer?
A CPA is not the only professional who can file taxes on your behalf. Many people and private businesses choose to pay licensed tax preparers to represent them before the IRS. To represent a taxpayer, licensed tax professionals must pass the three-part Special Enrollment Examination (SEE) and complete 72 CPE hours every three years. After completing all requirements, tax preparers are awarded enrolled agent (EA) status. EA status is the highest credential the IRS awards. Like CPAs, EAs are entitled to unrestricted taxpayer representation. Unlike CPAs, EAs’ expertise is limited to tax matters, making them extremely well-versed in their specialty. However, EAs tend to lack the broad financial knowledge that CPAs have. Some tax clients may prefer a more versatile approach to the tax-filing process rather than the more specific one, and vice-versa. “Because I focus specifically on tax, I am always aware of emerging trends,” Roberto Done, EA, a tax accountant at D.E Caribe Taxes in the Bronx, told The Balance in a phone interview. “In fact, several of my tax clients are themselves CPAs.”
Tax Preparers With Limited Representation Rights
Tax preparers hold a variety of credentials and fall into one of two categories—preparers with unlimited representation rights and those with limited representation rights. CPAs and EAs, as well as tax attorneys, have unlimited representation rights. CPAs, EAs, and tax attorneys may represent their clients before the IRS on any matters, including audits, payment or collection issues, and appeals. Some preparers have limited practice rights and do not hold any of the credentials mentioned above. These individuals can only represent clients whose tax returns they prepared and signed, but only in front of revenue agents, customer service representatives, and similar IRS employees. They also are barred from representing clients on matters of appeals or collection issues. Tax return preparers with limited rights include:
Annual Filing Season Program participants: These individuals are graduated members of a volunteer program that was designed to prepare taxpayers for tax season through educational courses. Those who obtain a certain number of hours of training receive a certificate of completion by the IRS. To maintain the certificate, participants must complete 15 hours of continuing education each year.Preparer Tax Identification Number (PTIN) holders: Preparers who have an active PTIN, but no credentials and are not part of the Annual Filing Season Program, have the authority to prepare tax returns. As of January 1, 2016, this is the only authority they have—they cannot represent clients before the IRS (except on returns they prepared and filed prior to December 31, 2015). PTIN holders often work at tax stores such as H&R Block.
CPAs vs. Tax Preparers
A licensed tax preparer’s focus is narrower but may be a great option for taxpayers seeking only tax-filing services. The EA credential is issued directly by the IRS, so they often have unique insight into dealing with complex IRS issues. The hourly rate is typically lower with an EA than with a CPA, so it’s often the better option for cost-conscious taxpayers. If your tax situation is straightforward, you may not need to hire a professional. However, if your tax situation is complicated enough to warrant paying for help, both CPAs and licensed tax preparers make for great tax preparation options.
