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As the saying goes, there are only two things for certain in this world: death and taxes.
Taxes impact everyone, yet most people struggle to understand the tax structure, how taxes work, and how taxes affect them. Wading through the thick tax codebook is overwhelming and confusing, especially for businesses.
Enter the tax accountant – your knight in shining tax code armor.
But what is a tax accountant, and what do they do? Should you consider hiring a tax accountant for your business or personal taxes? What are the requirements if you’re interested in becoming a tax accountant?
Read on for a complete guide to tax accountants. The following information will help you decide whether tax accounting is right for your taxes, business, or career.
What is Tax Accounting?
Traditional accountants look at the big picture when it comes to their clients. They work with the overall financial situation of their clients, whether that be for clients’ personal finances or that of an organization. They make recommendations and assist their clients in planning their optimal financial situation based on their goals and laws.
Tax accountants are specialists who focus solely on a client’s taxes. Tax accountants are guided and regulated by the Internal Revenue Service Code (IRS Code), a set of guidelines that individuals and businesses must abide by when filing taxes. This is the tax code referenced earlier, and it is long and complex, especially for businesses and other organizations.
Tax accounting involves knowing the tax code and properly filing taxes for individuals and organizations based on their individual situations and how the code applies to them. In this way, tax accountants ensure that their clients follow all the tax laws and avoid penalties from the IRS.
However, tax accountants do so much more than preparing and filing taxes.
“Tax planning is the act of trying to decrease your future tax bill by researching tax law to help you formulate your plan for the future based on what’s most advantageous tax-wise,” said Blaine Thiederman, Certified Financial Planner and founder of Progress Wealth Management. “This can make your retirement more affordable and your plan for life simpler. What most tax accountants do, alternatively, is file your taxes today and search for ways to lower your immediate tax bill.”
What Does a Tax Accountant Do?
In a basic sense, the job of a tax accountant is to prepare and file taxes accurately. They also must interpret tax laws and the implications of any recent changes in the law, such as with the tax changes enacted for 2018. After preparing tax documents, tax accountants file for their clients and then report the results back to the client.
Additionally, they also strive to file taxes optimally while keeping within the law so that clients save the most money. Tax accountant clientele includes public and private companies, nonprofits, government agencies, and private individuals.
However, tax accountants also offer tax planning advice and help clients to create plans to follow throughout the year to save them as much in taxes as possible. These plans include tax strategies that help defer or minimize tax liability. Tax accountants can also arrange audits with taxation authorities and help clients create a budget plan to meet their tax obligations by the deadline.
“Tax planning financial advisor is looking many years, usually decades, into the future and planning to minimize their client’s lifetime tax bill. This can be done with many decisions such as should the clients fund pre-tax or Roth 401ks (same for IRAs), should they fund HSAs, should they use HSAs or save them, should they complete Roth conversions, and much more,” said Brian Behl, Certified Financial Planner and Founder of Behl Wealth.
‘Typically, a tax accountant (in my experience) is mostly focused on filing the tax return for the prior year. They are looking back and reporting what happened, usually not focused on forward-looking planning,” he added.
While tax accountants consult and advise clients throughout the year, they can expect to be extremely busy during tax season. The schedule of a tax accountant will vary based on the clientele they serve, but most will be pulling long hours, possibly including nights and weekends, in the months leading up to the tax filing deadline.
In addition to all the job duties described above, tax accountants must be able to effectively communicate, listen to and understand the concerns and unique situations of each client they serve. It is also helpful for tax accountants to have at least a basic understanding of business concepts, finances, and general accounting.
What Education is Required to Become a Tax Accountant?
With the ever-increasing complexity of the tax laws, anyone hoping to work as a tax accountant will need to hold at least a bachelor’s degree. These degrees are typically in accounting, focusing on taxation, auditing, tax accounting, and tax laws at all levels of government. Some agencies may also require prospective employees to have a master’s degree in a specialized tax area.
In addition to holding a bachelor’s or master’s degree, many tax accountants hold certifications that allow them to demonstrate a high level of expertise in specialized areas. These certifications may include Certified Public Accountant (CPA) or Enrolled Agent (EA).
State and federal governments require those who specialize in taxes to hold either CPA or EA certification. While both certifications designate a professional as a tax expert, and their jobs are similar, there are some differences between a CPA and an EA.
What is an Enrolled Agent (EA)?
An Enrolled Agent (EA) is licensed at the federal level and solely focuses on taxation. They can provide tax advice, file tax returns for any entity that must report taxes, and represent clients in IRS proceedings.
Those wishing to obtain EA certification must pass a three-part test, apply to become an EA with the IRS, and pass a background check. EAs must complete 72 hours of continuing education every three years to maintain their certification.
What is a Certified Public Accountant (CPA)?
A Certified Public Accountant (CPA) is licensed at the state level and may specialize in other areas in addition to taxation.
Due to their expanded level of expertise, a CPA may perform other roles in addition to being a tax accountant. These potential roles include working as accountants, business advisors, tax consultants, financial planners, corporate accountants, and executives, and conducting audits.
Many undergraduate programs now include the necessary CPA coursework so that students can take the four-part exam upon graduation. However, while there is only one CPA exam, education and experience requirements for taking the exam vary from state to state, as do certification maintenance requirements.
Can You be a Tax Accountant Without CPA or EA Certification?
This is a tricky question, and the answer depends on which terms you use. However, the short answer is no because a tax accountant without CPA or EA certification wouldn’t be considered a tax accountant.
Accountants without certification can work in general bookkeeping and accounting jobs for finance departments, but those titled tax accountants that make taxation and related services their career must hold one of the above certifications.
However, an individual can be considered a tax preparer and prepare and file taxes without holding CPA or EA certification. These non-credentialed income tax preparers tend to work part-time or only during tax season, and many are employed by national tax preparation services such as H&R Block. They also typically prepare individual tax returns, which are generally less complicated.
While an individual can be a tax preparer without certification, they are required to have an active preparer tax identification number (PTIN) and have no authority to represent clients before the IRS.
How Much Does a Tax Accountant Make in Salary?
As with almost any career, the salary of a tax accountant can vary depending on experience, level of education, certification, industry, and location.
According to the Bureau of Labor Statistics, the median annual salary of a tax accountant is $79,500. However, an entry-level tax accountant can expect to make an average of around $51,000 a year which grows as experience is gained. Similarly, the higher the level of education, the more a tax accountant can expect to make.
Certification also factors into salary. EA certification is the highest credential awarded by the IRS, and tax accountants with EA certification typically make $15,000 to $20,000 more a year than CPAs.
Location also plays a big role in determining how much a tax accountant makes. Larger cities tend to pay more than rural areas. The top states for tax accountant mean salaries are:
- District of Columbia: $98,130
- New York: $96,300
- New Jersey: $90,400
- Virginia: $85,640
- Connecticut: $84,640
Should You Hire a Tax Accountant?
Whether you should hire a tax professional or not will depend on your needs.
If you are an individual looking for help preparing and filing your personal taxes, then a non-credentialed tax preparer will likely suffice. However, if you decide to go with a non-credentialed tax preparer, it is recommended that you go through a reputable tax preparation company, as non-credentialed individuals are not regulated in the same way as certified tax accountants and are often at the center of tax scams.
Conversely, if you have complicated tax situations, are a business owner or manage a non-profit, or need help navigating the IRS, then you’ll likely want to consider hiring a tax accountant with either CPA or EA certification.
Specifically, if you need support with the IRS, an EA is the best choice. EAs can also provide tax preparation and planning for either personal or business taxes and are often hired by businesses with complicated tax situations.
CPAs can also help with tax preparation and identifying any relevant credits or deductions. However, if you’re a business or organization with broader accounting needs, then working with a CPA will be best due to their expanded level of expertise
“If you’re healthy, earn an average living, plan to stay in the same house indefinitely, have healthy children, and are uninterested in making investments in real estate or in starting a business, then you may not need a tax professional. Turbotax is probably just fine,” said Thiederman.
“If you work an exciting job that earns a lot and pays you with anything other than cash. You work hard, plan to buy and sell real estate, start businesses and travel the world, you may need a tax professional. More excitement, money, risk, and variety oftentimes mean more opportunities for a tax professional to add value.”
How to Find a Tax Accountant
There are several ways you can go about finding a tax accountant.
One tried, and true way is to ask family, friends, and colleagues for recommendations. Another option is to check with your state or national tax accountant associations.
Many state boards of accountancy and CPA organizations keep online directories of members and can provide a list of tax professionals in your area. The National Association of Enrolled Agents also maintains a directory that you can search by location, specialties, experience, and language.
Another option is to search the IRS directory. The IRS website has a list of PTIN holders who have current credentials recognized by the IRS. You can also search this directory by ZIP code and credentials to find a tax accountant near you.
What is a tax accountant?
A tax accountant is a professional who specializes in taxation. While almost anyone could become a tax preparer, a tax accountant will hold at least a bachelor’s degree as well as either CPA or EA certification.
If you need help preparing and filing your personal taxes, then a tax preparer will likely suffice. However, if you have more complicated tax situations, need tax planning advice, or help to navigate a situation with the IRS, then you’ll want to seek the expertise of a tax accountant.
On the other hand, if you are interested in pursuing tax accounting as a career, know that you’ll need at least a bachelor’s in finance or business with an accounting focus, as well as CPA or EA certification. While the coursework and exams you’ll need to take will be rigorous, you can expect to have secure employment and an average salary of over $70,000.
So, what do you think? Is a tax accountant for you?
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