An increasingly large number of taxpayers use professional accountants and tax preparers to help them file their tax forms each year. These tax professionals can help ease the stress of taxpayers by guiding them through the legal complexities of federal and state tax codes and ensuring they take all of the deductions for which they are eligible. If you are considering using a professional to help you file your taxes this year, you'll have two primary options: an accountant or a tax preparer. Knowing the differences between the two will help you determine who you should trust with this important task.
Accountants are college-educated professionals who generally have at least a bachelor's degree in the field. This is particularly true of certified professional accountants (CPAs), who represent the most reputable and highly-trusted accounting professionals. Tax preparers, on the other hand, may or may not have a formal degree in accounting practices. Rather, most obtain professional training through the tax preparation center where they're employed.
In order to become a CPA, individuals must complete their accounting degree and pass a qualifying exam that tests their knowledge of accounting, business law, personal finance, taxes and financial audits. The stringent certification requirements that surround the CPA designation make these individuals highly regarded in the financial sector. On the other hand, If someone is not a CPA but wants to pursue a career as a tax preparer, he must pass an IRS exam on federal tax laws and other taxation issues to earn a designation as an "enrolled agent." This designation is considered an "earned credential" and not a professional license or certification.
Although CPAs have a vast understanding of the principals of accounting, business law, personal finance, auditing and other financial principals, they are not necessarily experts in taxation. In order to be certified, they must prove a level of knowledge in federal tax laws, but they don't necessarily have the level of experience and knowledge of a tax preparer with the "enrolled agent" designation. Because the enrolled agent exam focuses entirely on tax law, these individuals must have a high level of knowledge about taxes and the differences in tax laws for individuals, corporations and partnerships.
Who to Use
Who you decide to use for tax preparation purposes will depend mostly on your individual needs and your comfort level with the professional you've chosen. If you have a working relationship with a CPA you trust, for example, you may wish to utilize her expertise for preparing and filing your taxes as well. CPAs also have the ability to handle financial audits and sign financial documents -- neither of which tax preparers are authorized to do.
Another big factor that distinguishes tax preparers from accountants is their ability to work in multiple states. While accountants must pass a certification exam in the state they plan on working in, tax preparers who have passed the enrolled agent exam are authorized to work anywhere in the country.
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