There’s an accounting joke (yes, they exist) that goes like this:
Q: What is a CPA?
A: It’s someone who solves a problem you didn’t know you had in a way you don’t understand.
Even if that joke doesn’t make you laugh, it does contain an interesting bit about the necessity of a tax professional. The IRS certainly isn’t your friend, but it also isn’t your enemy. It is an organization operating on a mind-numbing system of complexities, the kind most people just aren’t cut out to navigate. The truth is, if you have a business of any size, you need professional help with your taxes. This comes in the form of tax preparers, enrolled agents, CPAs and tax attorneys.
If you’re as confused by the line-up as me, here’s a little clarity on the biggest differences between the bottom and top of the totem pole.
Tax preparers are trained in the general structure of tax returns. The majority of preparers are educated by whatever franchise they work at (H&R Block, Jackson Hewitt, Liberty Tax Service). Independent preparers may attend tax preparer courses, but no formal training is needed to start a practice.
Tax attorneys must obtain a specialized law degree. Beyond the basic degree, many tax attorneys obtain a Master of Laws degree in taxation as well as a mandatory Juris Doctor degree. In addition to this rigorous education, specialized courses are required covering advanced topics in business taxation. Many tax attorneys also have experience as certified public accountants.
Anyone can become a tax preparer. On Jan. 18, 2013, the District Court put a stop to IRS requirements for registered tax return preparers to complete competency testing or secure continuing education. In fact, all it takes to offer the public service of tax preparation is the acquisition of a preparer tax identification number (PTIN), which costs all of $64.25.
Tax attorneys must pass the state bar. After completing the years-long process of law school, tax attorneys must pass the bar exam of whichever state they wish to practice in.
3. What they can do for you:
Tax preparers are capable of assisting you with basic, straightforward tax returns. If you have no special needs or complications involved in your taxes then a tax preparer is a good call. Whatever choice you make, be sure to ask about the full extent of your tax professional’s capabilities.
Tax attorneys can navigate your tax needs at every possible level. If you run a business and require assistance with complicated tax matters, or need year-round accounting, the seasoned tax attorney is your best bet. They’ll keep you from getting in trouble with the IRS by guiding you through your finances before tax season and/or representing you in front of the U.S. Tax Court if that’s necessary.
4. Who should hire them:
Tax preparers are appropriate help for anyone with an ordinary tax structure. The ideal client of a tax preparer is an individual with run-of-the-mill tax needs who forgoes the option to fill out taxes themselves. A small business without complicated tax structure can use them also, but it is advisable to seek a more experienced professional. It’s worth noting that chain tax services like H&R Block, Jackson Hewitt, or Liberty Tax Service employ people with varying levels of experience, and it’s a good idea to ask if any CPAs are employed there. If the answer is yes, request to work with them.
Tax attorneys are the choice for anyone with intricate tax needs, or issues with the IRS. If you get audited by the IRS or owe an excessive amount of money ($10,000 or more) you should seek the help of a tax attorney. It’s a good to be proactive and hire a tax attorney for management of a more involved account where a traditional accountant will not suffice. This would include businesses with payroll, international business or estate planning. One option is to turn to a company like Burkett, Burkett and Burkett that staffs experienced CPAs and tax attorneys. These kinds of firms benefit from the shared experience of a group.
5. What they will cost:
Tax preparers charge in a number of different ways, but are generally affordable. From independent preparers to franchise services, methods of billing range from flat fees to hourly and scaled fees by level of complexity. The average 2012 price for H&R Block was $192 per return where Liberty Tax Service averaged $173.
Tax attorneys are costly. We all know that hiring a lawyer is going to cost and a tax lawyer is no exception. You will more than likely be charged an hourly rate and can expect to see them ranging from a few hundred dollars to $1,000 or more per hour. This is obviously what puts such an emphasis on hiring the right kind of professional. If you don’t require complicated tax services, you may be able to get by with a tax preparer or certified public accountant. However, don’t make the mistake of cutting corners in a situation where potential consequence so greatly outweighs the savings.