CPAs vs Tax Preparers: Which Type of Tax Professional Is Right for You?

To help you make a more informed decision, we'll break down each Tax Preparers Credentials...

Enrolled Agents (EAs) are America’s Tax Experts... 

• The Enrolled Agent status is the highest credential the IRS awards. 

• They are the only Tax Professionals required to demonstrate to the IRS their competence in ALL areas of taxation, representation and ethics before they are given unlimited representation rights before IRS. 

• Unlike attorneys and CPA’s, who are state licensed and who may or may not choose to specialize in taxes, all Enrolled Agents specialize in taxation. 

• They are the only federally licensed tax practitioners and the ONLY tax professionals who are defined in the U.S. Tax Code, who have unlimited rights to represent you, the taxpayer, before the IRS.

Tax Professional is a broad term and encompasses anyone who is paid to prepare tax returns. While CPAs and Enrolled Agents fall into this category, these credentials are not necessary to become a tax professional. In fact, some successful tax professionals have no credentials at all. The two types of Tax Professionals are...

• PTIN Holders – Tax return preparers who have an active preparer tax identification number (PTIN), but no professional credentials and do not participate in the Annual Filing Season Program, are authorized to prepare tax returns. They have no authority to represent clients before the IRS (except regarding returns they prepared and filed December 31, 2015, and prior).

• Annual Filing Season Program Participants – This voluntary program recognizes the efforts of Tax Preparers who are generally not attorneys, certified public accountants, or enrolled agents. The IRS created the AFSP to help serious, non-credentialed tax professionals stay well-informed and stand out from other non-credentialed tax preparers. The AFSP requires 18 hours of continuing education credits, including a 6 hour Annual Federal Tax Refresher Course and subsequent comprehension exam, 10 hours on federal tax law, and 2 hours on ethics.

The CPA credential is more difficult to gain, but that doesn’t necessarily mean a CPA is a better fit for certain tax situations. It’s true that individuals and businesses with the most complex tax returns often turn to the expertise of a CPA who specializes in their tax situation. However, CPAs can work in a wider range of fields, and those that specialize in non-tax areas such as audit and accounting may not have practical day-to-day experience in tax preparation. 

CPA stands for Certified Public ACCOUNTANT, no surprises there! Big shoutout to all the CPAs who conquered all four parts of that exam—no small feat! 

But here's the scoop: passing the CPA exam doesn't automatically make you a tax guru. Why? Because a CPA is first and foremost an Accountant. Accountancy is a massive umbrella, kind of like law or medicine—tons of specialties under one big roof. 

We get it. Tax season can be a headache, and it's tempting to hand over your financial details to anyone with an impressive acronym like CPA (Certified Public Accountant). But wait a minute! 

Here's the real talk: Don't mistake a title for capability or competency for that matter. Having those three letters after your name doesn't automatically mean you're a tax expert. There are CPAs that don't know tax or want anything to do with tax preparation. 

CPA's are taught and knowledgeable in Generally Accepted Accounting Principles (GAAP). GAAP is a set of accounting rules and standards that are used to prepare and report financial statements. The Financial Accounting Standards Board (FASB) sets these rules. 

While the basics of tax are covered in CPA courses, the main curriculum studied is focused on learning financial accounting. Any well versed Tax Pro knows there's a difference between financial accounting and tax accounting. 

• Financial Accounting - focuses on providing a comprehensive picture of a company's financial health for external stakeholders

• Tax Accounting - primarily concerned with fulfilling tax obligations and calculating tax liability

And hey, no shade to CPAs! This is just a friendly public service announcement to help folks understand the distinctions.

Tax Professionals and EAs, on the other hand, specialize solely in tax preparation and should be well-educated in most tax laws and situations. 

Would you rather seek help from a generalist or a specialist? If you or your loved one suffered from heart complications, would you seek treatment from your regular family doctor or a cardiologist? Even your Primary Care Physician refers you to a specialist when the care you need goes beyond their foundational knowledge and experience. 

Okay, enough of the fundamentals —let's dive into why Tax Professionals often outshine CPAs when it comes to preparing tax returns and win the tax return showdown:

1. Specialization in Tax Laws:

Tax Professionals eat, sleep, and breathe tax laws.  They don't just dabble; they're knee-deep in the tax code.  

Tax Professionals dedicate their careers to mastering the intricacies of tax laws, codes, and regulations. Their focused expertise ensures that they are up-to-date with the latest tax changes and can navigate the complexities effectively. This specialization minimizes the likelihood of errors on your tax return.

2. Tax Planning Expertise:

Need to shrink your tax bill? Need to extract every possible tax advantage? Need to maximize your deductions and minimize your tax liability?

Tax Professionals have the strategies to make it happen. They'll tailor a personalized plan to help you keep more of your hard-earned cash.

They excel in tax planning, helping clients optimize their financial decisions to reduce tax liabilities. Tax Professionals can provide valuable advice on deductions, credits, and legal tax strategies to maximize refunds or minimize payments. 

3. IRS Representation:

Ever been audited? Some Tax Professionals, such as Enrolled Agents (EAs) and AFSP Participants, may be able to represent you in IRS disputes or tax audits. Their in-depth knowledge of tax laws allows them to defend your interests effectively, providing peace of mind during potentially stressful situations. Their mastery of tax laws can shield you from the worst of IRS scrutiny.

4. Personalized Service:

Tax Professionals don't do cookie-cutter solutions. And they're not just number-crunchers; they're your financial confidantes. 

They know your name, your unique financial situation and goals. Tax Professionals tailor their service and find solutions to fit your needs. This level of customization can be especially beneficial for businesses and individuals with complex financial situations.

5. Cost-Effective Expertise:

While CPAs offer a wide range of financial services, Tax Professionals typically charge competitive rates for tax return preparation. This can lead to cost savings for individuals and small businesses seeking tax assistance without paying for a buffet of services. 

You get expert service without paying for any additional services you don't actually need.