What Are the Different Kinds of Tax Preparers, and What Do They Specialize In?
When tax season comes around every year, you have a crucial decision to make: Will you hire a tax preparer or go it alone? If your tax return is fairly simple and you’re comfortable making the necessary decisions, by all means prepare the return yourself or use one of the many online tax-prep tools (some of these are even free). But if your return is more complicated, or you’re serious about squeezing out every last deduction and credit, then it’s wise to put your return in the hands of a professional.
If you do want help preparing your return, then you should choose a tax preparer whose credentials and expertise best meet your needs. Otherwise you could end up overpaying for expertise you don’t need or, conversely, choosing a tax pro who’s not qualified to handle the nuances of your tax situation. Let’s go over your options.
Certified public accountant (CPA)
A certified public accountant, or CPA for short, is a person who is licensed by the state to offer accounting services to the public. All state boards of accountancy require an aspiring CPA to pass the Uniform Certified Public Accountant Examination, a rigorous test administered by the American Institute of Certified Public Accountants (AICPA). More than forty states also require CPA candidates to pass an ethics exam.
Once licensed, a CPA must meet state requirements for continuing education. CPAs can provide a variety of services, such as,
- maintaining financial records,
- examining financial statements,
- providing auditing services, and
- preparing tax returns.
Some CPAs specialize in tax planning and preparation. CPAs are granted unlimited representation rights by the IRS. As a result, they are allowed to represent clients on any tax matters, including,
- tax audits,
- payment and collection issues, and
- appeals.
Tax attorneys
The ultimate tax experts, tax attorneys specialize in the most complicated convolutions of tax law. You probably don’t want to turn to one for preparing your tax return, as their rates are as stratospheric as their expertise, but they are an excellent choice if you end up in tax court or if you’re being audited and think you may have committed fraud on that return.
Annual Filing Season Program Participants
Annual Filing Season Program Participants are tax preparers who have elected to go through the IRS Annual Filing Season Program (AFSP). The program consists of a 6-hour Annual Federal Tax Refresher (AFTR) course with a comprehension 3-hour test, plus 12 additional hours of continuing education annually. While this program is voluntary, it is a method through, which the tax preparer demonstrates competency by completing required education and testing. Upon successful completion of the Annual Filing Season Program the IRS awards a Record of Completion to eligible participants.
AFSP participants have limited representation rights. They may only represent clients whose returns they prepared and signed, but only before revenue agents, customer service representatives, and similar IRS employees, including the Taxpayer Advocate Service.
Enrolled Agent
Enrolled agents hold federal licenses showing that they have completed and passed a comprehensive, federally administered IRS exam. Enrolled agents may also be former IRS employees. These individuals — who may work as consultants or as members of a firm — possess wide and all-encompassing knowledge of tax laws and tax preparation. Enrolled agents, however, may choose to specialize in certain aspects of tax preparation. Some may work only with business owners, and others may work only with retirees.
Non-Credentialed Tax Preparers:
There are about 700,000 people who work as non-credentialed tax preparers in the United States. They often work part-time or only during the tax season. These preparers must have an active preparer tax identification number (PTIN) through the IRS, but beyond that, regulating tax preparers done at the state level. In the vast majority of states, anyone can prepare tax returns for others without having to take an exam, get a license, or comply with other government regulation. Learn more about your state’s requirements here
Most tax preparers are legitimate and competent, but keep in mind that without a national license requirement, they may be working off of their own personal research and experience. Because of this, it is important you conduct a thorough interview with the tax preparer before you hire them.