Who’s your Tax Expert?
CPA or Not a CPA? Does it Matter?
I get asked frequently if I am a CPA. Most people assume that you have to be one to call yourself an accountant or a tax preparer.
Well, I’m here to tell you that that’s not so.
Don’t get me wrong. Achieving the CPA status is a grueling and thorough program. It requires long study, experience, a difficult series of exams, and a background check. Each state regulates the CPA license, and CPAs guard it jealously.
But the license is a license to give an opinion that a company’s books comply with the Generally Accepted Accounting Principals (GAAP). And that opinion is only required, mostly, for publicly traded companies. So other than expertise, the requirement to hire a CPA is very narrow.
But what is behind that CPA title is very important because by using that title the holder also states that he or she is the most well trained and experienced person in the field of accounting.
I am not a CPA and really have no intention of becoming one. But I have the same background of those who have not taken the test. I have long experience–over 20 years in just tax preparation. I study my field, which is guaranteed by the need for continuing education credits as well as research needed to answer my client’s questions. My background was checked with fingerprints and criminal background when I became an ERO (electronic return originator). And, I’m just one course away from my MBA.
But I am first and foremost a tax consultant. And there is no more expert person in that field than those who are enrolled agents (EA) as authorized by the Treasury Department. I am currently pursuing that designation through a series of specialized courses and exams. An EA is the only representative you can hire whose credentials come from the federal government.
This article is not just self-promotion (I admit it is that). It’s to help clear the air a bit about who to turn to for tax advice, and how to get the most out of that tax advice.
First, I must say that this article, in fact all of my articles, are not tax advice. In order for you to be able to rely on what you are told by me or any other expert, your personal situation must be known and considered by that expert. So an article written in general cannot be taken by you to be advice, unless it has a line like, “Hey. Billy Joe Bob, pay attention, this is about you!” There is no such line in this article.
Of course, that’s the principle problem with computer tax preparation software like TurboTax or TaxAct. Even if you call one of their “experts” about your return, they really don’t know you. You can describe the problem you are having right then, and they can give you an answer. Will they know that last year you filed bankruptcy? Will they know that your daughter will be going to State U next year? Are they taking into consideration that your plans are to retire next year, but won’t take Social Security until you are 70? You see, stuff like this may (or may not) make a difference. But because you work regularly with a tax expert like me, the expert will know these things and if they are important they can bring them to the table to assure you are paying the minimum taxes now.
I’ve said it before: anybody can fill in a form. Filling in the form is not tax preparation. Tax preparation is knowing what should be on the form, and what should have been done to prepare to report that information.
If you are in business–especially if it is a very small business–there are many things that you should be doing all year long to minimize your tax liability. And, to be able to support what you did if you are audited.
Most audits today are not the old fashioned complete examination of everything. Yes, a very small number of those are still done. But the vast majority of audits are done by mail and deal with a specific issue. So you get a letter that basically says, “We see you reported thus-and-so on your tax return. But what we received shows that such-and-such was actually reported by third parties. Please pay us the difference or explain why you are right.”
Because the IRS only has your tax return (a voluntary summary report) and the reports from your employer, your bank, your stock broker, etc, they require an explanation of any differences. Well, there are many reasons there may be a difference, and a difference that is OK. But that explanation is the tricky part. And it is your responsibility to provide the proof if asked.
So, talking to the expert from TurboTax (who might even be a CPA picking up a few bucks on the side) won’t do you any good if you don’t have the records to support it. And that guy will not be there until after the fact.
But a tax expert (CPA, EA, attorney, or what the IRS calls an “unenrolled preparer”) that you work with all year can be there to help you set things up. They can be there to hold you accountable. They can be there to pull you back from the brink of a bad decision–if they know beforehand.
So now, Billy Joe Bob, this piece of advice is about you: Hire a tax expert who will work with you all year, learn your situation and then give you solid advice to minimize your tax bill and keep you out of the IRS’s sights. No small business should be without one.