What Is A Tax Professional?
Tax professionals – or tax preparers – can be considered as anyone who has the skills and knowledge to prepare income taxes for a set rate or fee. However, the main difference between certified tax professionals lies within their ability to represent you – and your business – before the IRS on matters concerning your taxes.
FATPs – Federally Authorized Tax Practitioners – are the tax professionals who are granted with that specific privilege, delegated to them by the IRS. They are authorized by the IRS to advise and represent you on any tax and/or payment matters.
The majority of qualified tax professionals have the appropriate credentials, understanding, and direct experience to assist you in preparing your individual or business taxes. They are required to constantly update their knowledge as it pertains to tax laws, and their rules and regulations.
Unfortunately, these variables can change from year to year and can severely impact the amount you owe back in taxes or the amount you will receive in your tax refund.
When it comes to your business, finding the right tax professional is essential. Your current and future revenue potential could be directly impacted by receiving help from a well-educated and experienced tax professional.
In ideal circumstances, a long-term relationship should be formed with the individual you choose to hire as they will be a good resource to connect with year-round. The perfect fit will be a major stress-relief so when it’s time to choose, make sure to do your research and learn about what services are offered amongst all of the tax experts.
Tax Preparation: What Does A Tax Professional Do?
Tax professionals advise on tax and financial planning throughout the entire year, not just during tax season. At a minimum, you should be communicating with your tax advisor as it pertains to developing key strategies to legally minimize your taxes. Your tax expert will help to circumvent potential issues to keep your bill lower by staying present with laws and regulations regarding taxes.
The majority of tax professionals that businesses hire will also be their tax preparer – preparing both your individual and business tax returns – especially if your business taxes are being paid through the individual tax return.
Utilizing the same tax professional for both of these matters will help you to organize tax savings. For instance, you can apply a loss on business taxes to your individual tax return to decrease your taxes as a whole.
Also, if the business regenerates a lower revenue, self-employment taxes will be lowered and result in paying both income taxes and personal tax.
Once your tax return has been filed, it is possible that your tax expert still has work to do in the case of an audit. Your tax preparer should be the same person you seek advice from if the IRS sends a notice of an audit, as well as representing you and your business during the entire process of an audit.
Types of Tax Professionals
Those who are tax preparers don’t require IRS licensure, however, to ensure you are leaving your businesses accounting in the right hands, make sure one these credentials are met before considering a hire.
1. Enrolled Agent (EA)
An EA – Enrolled Agent – has a license from the IRS. To qualify, they are required to pass an examination or have a minimum of five years total experience as an IRS employee. These tax professionals offer services, such as accounting and bookkeeping, and are the least expensive.
2. Certified Public Accountant (CPA)
A CPA’s – Certified Public Accountants – who have their license with the state they are working in and must strictly adhere to the rules and regulations of that state as well. These type of tax professionals work largely with larger businesses or corporations as they tax returns are quite complex and require tight attention to detail. Larger CPA firms are more expensive than CPA firms who are smaller and deal with the small business sectors of the world.
3. Tax Attorneys
Lastly, there are lawyers, often recognized as tax attorneys, who hold special degrees in tax law – LLM in taxation – that have certifications in tax specialization received from a state bar association.
These tax professionals are expensive; however, it is highly recommended that if you run into any issues regarding your business taxes – including IRS. If the scenario ever presents itself, you will require legal consultation in order to prepare for court, or business and estate planning.
Whatever the nature of your business endeavors and inquiries, you will need to make sure that the professional you hire has a specific understanding and experience to fit the needs of your business’s financial status. Hiring tax professionals has become a popular trend among businesses to assess strategies as the new tax law took effect.
More than 21% of CFO’s confirmed their employing of full-time tax and accounting specialists to prepare their financials in meeting the new requirements set by the IRS.
On the other hand, there are more than 33% of companies that are hiring professionals with specific expertise to meet the requirements. Of those numbers, more than 42% are requiring additional training, while more than 34% of CFO’s are upgrading the financial system they are using.
How A Tax Professional Helps You and Your Business
Finding a tax expert will be well worth your while when an assistant is required throughout the year. Their knowledge of all things concerning taxes will help you to make the right decisions for your business’s financial success.
From basic to expert advice, they will have the right tools and resources for you. An additional benefit is their ability to develop and maintain financial record keeping that can be tailored to your business – which is extremely beneficial to those business owners who despise the task of record keeping.
Additionally, one major benefit of hiring a tax professional is when it comes time to prepare tax forms, you or the software you use – business or personal – could miss tax deductions. So by having your expert review the documents you or they have prepared, this will limit the number of red flags that could trigger issues with the IRS.
As stated previously, if the very unfortunate situation would ever arise, your tax professional will advise you when dealing with an IRS audit. Receiving some form of coaching could evade both minor and major issues that are otherwise completely unavoidable if the proper steps are not taken. Which directly relates to the next benefit of hiring a tax professional, representation under the circumstance of an IRS audit.
Having a CPA, a tax attorney, or an enrolled agent to represent you before the IRS is essential because of their expertise in the matter – which takes the stress of dealing with them off your shoulders (under most circumstances).
Choosing Your Tax Professional
There are a lot of resources you can utilize when searching for a tax professional that is ideal for you and your business needs.
Personal referrals are a great means of finding your future tax expert. You can start off by asking personal attorneys, bankers, business associates for recommendations, then talk to friends and family to see if they have personal referrals in mind.
Social Media and Advertisements
Social media platforms and advertisements – such as trade journals, personal ads in the newspaper, and phone directories, can assist in the process as well. Along with this, another great resources to utilize are referral panels and professional boards – like CPA societies and bar associations – which can assist in locating a tax professional via recommendations and will provide certifications of competencies for the ones listed.
It is highly recommended that a minimum of 3 professional candidates are interviewed in your process of choosing the right tax professional. Consult with them and inquire about whether they have the ability to consistently assist you in tax needs, as well as their experience in the field and how it pertains to you and your business.
Make certain you know a tax professionals’ costs and fees first. There are some that operate with fixed costs for various assignments – tax form prep, accounting, bookkeeping, etc. – while others will charge you per hour.
Similar to most professional services, you may have the opportunity to negotiate fees. Once the terms of pay rate are decided, create a written fee agreement to negate potential issues regarding bill disputes in the future.
Checking for Credentials
Approximately one-third of tax filers will hire either a tax preparer or advisor to help when filing tax returns.
That being said, of those who hired a tax professional, 80% failed to request and examine the individual’s credentials, while approximately 75% failed to ask whether they would be able to represent them in the case of a tax audit.
Considering the number of personal details shared with a tax professional, it seems foolish to not request the individual’s personal information as it pertains to their education and certification.
Although fairly simple to achieve, it is a requirement set by the IRS that any person who assists in and completes the tax preparation of federal tax returns for compensation to hold a PTIN – Preparer Tax Identification Number. Therefore, you should ask the tax professional for theirs and request they add their number to the tax documents they prepare as this is also a requirement of the IRS.
On top of this, you should require that the tax professional have the appropriate credentials required to be a certified public accountant, a tax lawyer, or an enrolled agent, and request proof of certification.
In addition to obtaining their certifications, tax professionals are also required to complete the Annual Filing Season program provided through the IRS, which demands an extensive amount of studying, examination, and continuing education to receive.
Finding a tax professional with credentials that appeal to you can prove to be strenuous. Fortunately for you, the IRS provides an online directory of tax professionals that contains information for each that includes their PTINs and professional credentials recognized by the IRS.
There are also professional organizations that tax preparers can have a membership with, which is a good sign because these groups require a firm adherence to their code of ethics and professional conduct. Search for organizations such as the:
- National Association of Tax Professionals;
- American Institute of Certified Public Accountants;
- National Association of Enrolled Agents; or the
- American Academy of Attorney CPAs.
The average costs a tax professional would charge to handle an audit from the IRS in person is, at a minimum an hourly rate of $150. Tax professionals who conduct legitimate business affairs will typically charge by an hourly rate.
Keep in mind the red flags associated with those who based their fees on the size of the tax refund you may receive – or those who claim to guarantee they have the ability to retrieve a larger refund than other tax professionals.
Reevaluate Those Who Do Not E-file
Any tax professional who prepares more than 10 tax returns is required by the IRS to file through their electronic e-file system.
If the tax professional you hire does not offer an e-file service, they may not have the amount of expertise or experience fit to handle your special financial dealings.
Cost of Hiring A Tax Professional
What are the average costs to hire a tax professional to prepare and file your taxes? According to the National Society of Accountants, the average cost or fee of tax return preparation is as follows:
- $176 – the average cost for preparation of tax forms and submitting a completed Form 1040 and state return without itemized deductions
- $273 – the average cost for preparation of tax forms and submitting a completed itemized Form 1040 with Schedule A and a state tax return
- $457 – the average cost for an itemized Form 1040 with Schedule C in addition to a state tax return
Is It Worth Hiring a Tax Professional?
The safer route when filing for taxes is to hire a tax professional to deal with all your financial preparation and filing needs. One clue that you may need to consider hiring a professional tax preparer is whether you are confused by the whole business of taxes and/or there are numerous questions you need answers to.
Although some individuals believe they can save money or more efficiently understand their personal finances by preparing their own taxes, there are a lot of variables to consider before making that intense commitment.
The IRS’s rules and regulations, changes in tax laws, etc. can be quite overwhelming if taken on headfirst – hiring a tax professional can minimize any unforeseen issues and errors that could occur from preparing and filing your personal tax returns.
If there are any concerns regarding tax preparation and filing matters, there is definitely a benefit of hiring a professional to ensure ease of the filing process. That being said, if all you have is a simple tax return to file, you should deeply consider the task of filing taxes for yourself.