As a business owner, you always want to choose what’s best for your business. This includes tax accounting, and selecting the best person to do your taxes is one of the most important things to consider. Which is best for your business, a CPA (Certified Public Accountants) or a tax preparer?
In this article, you will explore what a CPA vs tax preparer is, how tax advisors vs CPA differ, and when to choose one for your tax situation.
What Is A CPA?
Certified Public Accountant, or CPA, is an accounting expert who has passed the CPA exam and obtained a license from their state. CPAs frequently assist businesses and individuals in managing expenses by analyzing their financial data. They could also help with financial planning, tax preparation, auditing, and investing.
While a CPA’s daily tasks may vary depending on the demands of their clients, some of their primary roles include:
- Preparing and filing local, state, and federal tax returns
- Conducting financial information audits and preparing financial statements
- Consulting clients in managing their budget and economic activities
- Analyzing client’s personal and financial information to minimize tax obligations
- Guiding businesses on mergers and acquisitions
- Giving clients investment advice
- Helping clients with estate planning
- Carrying out bookkeeping tasks
- Representing customers in audits and legal proceedings
See more: How To Become a CPA? – The Comprehensive Guide
What Is A Tax Preparer?
A tax preparer is a financial professional who prepares and files taxes for individuals and companies. Many people work with tax preparers to guarantee that their taxes are filed accurately and that they get the most tax refund possible based on their annual income and other factors.
Tax preparers’ primary duties vary depending on the client’s needs, but these usually include the following:
- Gathering crucial tax information from clients on income, expenses, and allowances
- Completing and submitting paperwork following federal and state tax laws
- Organizing confidential paperwork
- Utilizing accounting and financial software to guarantee accuracy
- Keeping time records and handling billing for each client
- Taking calls and scheduling appointments
- Giving their clients financial advice and recommendations
- Updating information about federal and state tax laws, adjustments, credits, and deductions
- Reviewing tax codes to compute the taxes owed for each client
- Auditing tax forms to ensure they’re accurate and complete
- Signing income tax returns on behalf of clients
- Communicating between clients and tax authorities
5 Main Differences Between CPA vs Tax Preparer
1. Certifications
Tax Preparer
Before beginning their profession, tax preparers must get a Preparer Tax Identification Number (PTIN) from the Federal Revenue Service (IRS). To obtain PTIN, they must create an account on the IRS website, visit the application page, and complete the form. Then, they will include PTIN on each tax return they file for clients once they get it.
CPA
Except for PTIN, CPAs need to complete additional certifications to practice. Although each state has different prerequisites for becoming a CPA, most states require passing the following tests:
- CPA test: This four-part CPA exam is given by the American Institute of Certified Public Accountants (AICPA), and it can take up to 18 months to complete. These tests emphasize issues related to accounting, reporting, financial accounting, regulation, the corporate environment, and other business areas.
- CPA ethics exam: After passing the CPA exam, candidates often take this online exam offered by the AICPA. This exam consists of 40 multiple-choice questions and is designed to help CPA candidates get ready for the everyday ethical challenges they may encounter in the workplace.
2. Education
Tax Preparer
To start getting a job, tax preparers need to earn at least a high school diploma or a GED (General Education Diploma). Even though certain employers may prefer candidates with an associate’s or bachelor’s degree in business or accounting, tax preparers may decide to do additional coursework in accounting and tax preparation instead of pursuing an advanced degree.
CPA
A bachelor’s degree in business, accounting, or a similar subject is the minimum educational requirement to become a CPA. Although it usually takes 120 hours to acquire a bachelor’s degree, some states demand 150 hours of coursework before students can sign up to take the CPA exam.
To fulfill this prerequisite, many CPAs enroll in a five-year combined bachelor’s and master’s degree in business, accounting, or finance. But they can also take additional courses outside the program in various subjects to complete the requirements. For example:
- Tax planning
- Financial controls
- Cost accounting
- Business ethics
- Accounting theory
- Business management
3. Training
Tax preparer
Employers usually offer tax preparers on-the-job training to assist them in becoming proficient with accounting, scheduling, spreadsheet, data management, and taxation software.
To develop skills before applying for positions, tax preparers may research tax laws, register for finance webinars, and enroll in accounting classes through a vocational school. Tax preparers may receive training from some certified institutions, such as the Accreditation Council for Accountancy and Taxation (ACAT) or the National Association of Tax Professionals (NATP), to impress prospective employers.
CPA
CPAs undergo a lot of training to get their license and real-world work experience. Before applying for their license, CPAs typically need from six months to two years of accounting experience, depending on the state. To gain experience, many CPAs take up entry-level roles in the accounting division of a business or for an accounting firm.
4. Working Conditions
Tax preparer
Tax preparers may work seasonally or part-time during tax season, generally from January 1 to April 15. During this time, they have to work overtime in the evenings and on weekends to help their clients with tax activities.
Tax preparers often work in an office setting. However, sometimes they may travel to meet new or existing clients to acquire the necessary data to file their taxes. They may also collaborate with other tax professional colleagues if they work for a firm.
See more: How To Become A Tax Preparer – A Complete Guide
CPA
Due to their extensive knowledge of many financial topics, CPAs can find year-round work in various industries. They typically work full-time hours throughout the year, but during tax season, they might work longer on the weekends and nights than tax preparers.
Although they frequently work in offices, some CPAs choose to work as independent contractors remotely. They occasionally travel to meet clients, provide expert testimony in court, or carry out business audits.
5. Salary and Benefits
The income of a tax preparer or CPA may change depending on factors such as educational background, professional experience, and skill set. The size of their company may also impact the compensation, the number of hours they put in each week, and the cost of living in the area.
Tax preparer
In the US, a tax preparer makes an average pay of $37,017 annually. They usually receive some of the following expected benefits:
- Flexible schedule
- Work-from-home opportunities
- Professional development assistance
- Paid time off
CPA
On average, a CPA’s annual salary in the US is $80,599. Along with some of the most typical benefits listed above, CPAs who work full-time for an organization also typically receive health insurance and a 401(k).
Frequently Asked Questions
Can You Sue Your CPA or Tax Preparer?
Like any other profession that keeps professional standards, a tax advisor vs CPAs must perform their duties carefully. You can sue them legally when they fail to fulfill those duties, which makes the company suffer monetary losses.
How Do I Hire a CPA or Tax Accountant?
You can hire a CPA or Tax Accountant by following these steps:
- Decide whether you need a CPA or an accountant since different accounting professionals can perform various tasks and do slightly different work.
- Get recommendations from friends or coworkers, contact state and national associations for assistance in choosing a CPA firm or an accountant, and use social media to look for potential candidates.
- Assess firms and individuals to find the right fit for your business by interviewing, requesting relevant information, asking questions, and evaluating what you get for the price.
- Hire a CPA or tax accountant that meets your requirements and hiring budget.
When Should You Hire A CPA or Tax Pro?
If you have little time for tax preparation or your situation is complicated, hiring a CPA or tax professional can be an effective alternative. Here are a few scenarios you can consider:
- You’re self-employed
When you own a business, you need to keep track of your revenue and deductible costs and pay quarterly anticipated taxes. In this case, you should generally engage an expert knowledgeable in these areas if you don’t comprehend estimated taxes, deductible expenses, depreciation, and inventory accounting.
- You own rental property
Tax returns of rental income can be challenging. Special rules govern depreciating rental property and claiming losses from rental activities. In this situation, a tax expert can assist you in claiming the proper deductions.
- You have foreign investments, bank accounts or income
Foreign bank accounts and investments may require more tax filing even if you don’t earn any income from the accounts. Due to its complexity, you might need to seek help from a tax professional with expertise in handling these situations.
A CPA offers a broad range of CPA tax services for anyone looking for year-round accounting assistance or making wise tax decisions before filing. A tax preparer is typically the best option for those who expressly want assistance when filing taxes.
It is beneficial to start with your goals when comparing the benefits of a CPA vs tax preparer for your company before choosing CPA tax services.
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