Every year at the start of the year, taxpayers start collecting all their documents to prepare for tax season. Some opt to use a tax accountant to simplify their filing process.
But tax accountants do more than file taxes—they can help individuals and businesses save money year-round.
So, what is a tax accountant, and what do they do? Read on to find out when hiring this professional might do you good.
What is a Tax Accountant?
A tax accountant is a professional who helps individuals and businesses save money on their taxes. They do this by ensuring that their clients take advantage of all the deductions and tax breaks for which they qualify.
Most people only think about hiring a tax accountant when preparing their taxes for the filing deadline. However, a good accountant can save you money throughout the year by helping you make the most of your deductions and tax breaks.
What Does a Tax Accountant Do?
There are a few different things that a tax accountant can do for you. They can help you to file your taxes, prepare your return, and even negotiate with the IRS on your behalf.
If you are self-employed, an accountant can help you to set up a retirement plan and estimate your quarterly taxes. They can also help you understand new taxation laws as they come about and change and learn how they will affect you before you have to file in April.
For companies, a tax accountant can help with bookkeeping, payroll, and financial planning. They can make sure you’re taking advantage of all the deductions and tax breaks you are entitled to and help you avoid any penalties from the IRS.
When it comes time to file annual taxes, an accountant will help their clients correctly fill out all the forms. They also give them advice about future moves they can make financially to save money on taxes.
Other responsibilities of the role include:
- Preparing and filing 1099 forms for contractors
- Updating projected taxes
- Assist with audits
- Prepare both state and federal income taxes
- Pinpoint big breaks and incentives that apply to specific situations
- Organize and maintain documents
Requirements to Become a Tax Accountant
Not just anyone can become a tax accountant. It takes education, experience, and skill.
To become an accountant, you will need to have at least a bachelor’s degree in accounting or a related field such as finance or business. Many tax accountants also have a master’s degree in accounting or taxation.
You should also have at least two years of experience working in an accounting or tax preparation role. While this isn’t an industry-wide rule, it’s common practice. Some companies may require you to have even more experience, while others may be more willing to take a chance on someone with less experience.
Besides experience and education, you will need to be licensed by the state where you wish to practice. This license is called the Certified Public Accountant (CPA) license. The requirements to obtain a CPA license vary from state to state.
To become licensed, you need to pass an examination that tests your knowledge of relevant accounting laws. The American Institute of Certified Public Accountants administers the exam in four parts.
Once you have your license, you will need to complete continuing education courses every year to keep up with changes in the taxation laws.
Accountants who choose not to go the CPA route may become enrolled agents (EA), a credential that lets them legally represent clients in tax matters to the IRS. To qualify, individuals must pass the Special Enrollment Exam and complete at least 16 hours of new courses on taxes each year to remain in good standing.
Why Do You Need a Tax Accountant?
There are a few different reasons you might need to hire an accountant.
If you are self-employed, have a complex financial situation, or own a business, you may need a tax accountant’s help to take advantage of all the deductions and breaks you are entitled to receive.
A tax accountant can also help you negotiate with the IRS on your behalf if you have been audited or facing collection. They can also help you set up a payment plan if you owe money.
Some unique situations when an accountant may be able to help you the most include:
- Shortly after getting married or divorced
- After buying or selling a home or property
- After having a baby or adopting a child
- After selling stocks
- After selling crypto
Not everyone needs to work with a professional accountant, however. You might not realize the full value if you are single without kids, don’t own a home, don’t own a business or work independently, and typically use the standard deduction when filing.
How Much Does a Tax Accountant Cost?
The cost of an accountant varies depending on the complexity of your taxes and the experience of the tax accountant.
Typically, you can expect to pay anywhere from $200 to $600 for individual preparation. If you have a small business, you may pay closer to $1,000 or more depending on the complexity and the time it takes to prepare.
You will likely pay more if you itemize all of your deductions versus paying less for a simple filing or standard deduction.
Some accountants charge by the hour, while others charge a flat fee. It’s essential to ask about pricing before you decide to work with a tax accountant.
A software program like TurboTax or H&R Block is a more affordable option for those who still need some help with taxes but might not utilize a tax accountant fully.
Is It Worth It To Hire a CPA Tax Accountant?
There are a few things to consider when deciding if hiring a certified public accountant (CPA) is worth it for you.
The first thing to think about is the complexity of your taxes. If you have a simple financial situation, you might be able to get by by using software or working with a less expensive preparer.
However, if you have a complex financial situation, own a business, or are self-employed, it might be worth it to invest in the services of a CPA accountant.
Another thing to consider is whether or not you need help with other aspects of your finances, like estate planning or bookkeeping. If you do, then working with a CPA who offers these services in addition to seasonal prep might be a good option for you. Plus, it simplifies your overall financial processes by streamlining most of your documents through one reliable person.
Finally, think about the cost of a CPA accountant versus the peace of mind that comes with knowing your taxes are in good hands. For some people, the cost is worth it for peace of mind.
What Are the Differences Between Tax Accountants and Tax Preparers?
Accountants and tax preparers help their clients save money on their taxes, but there are some critical differences between the two professionals.
Requirements by the IRS
Tax preparers must pass an examination and receive a Preparer Tax Identification Number (PTIN) from the IRS to establish competency. Then, they must continue their education annually by completing at least 15 hours of continuing education courses in ethics and federal tax law.
There is no such requirement to become an accountant. Instead, most are CPAs who use a different certification.
Tax preparers typically just help customers fill out their tax forms and do not offer any additional services. Their knowledge is relatively limited, and they won’t be able to advise clients on future moves or best practices outside of preparing and filing the tax return.
On the other hand, tax accountants often provide a more comprehensive range of services beyond simple preparation. These services can include bookkeeping, financial planning, and advice on minimizing taxes in the future.
Seasonal vs. Year-Round Work
Another key difference is that preparers are usually only needed during tax season (January to April). After filing taxes, most people no longer need their services until the following year.
Tax accountants, however, often work with clients year-round to help them plan and minimize their burden. For this reason, they are typically more expensive than tax preparers.
Preparers typically have little room to grow in their career. They might be able to move up to a supervisory position within a tax preparation firm, but that is about the extent of their career prospects.
Accountants, on the other hand, often have many opportunities for advancement. They can open an accounting firm, become a partner in an existing firm, or even work for the government in a tax policy role.
Tax accountants provide valuable services to taxpayers, often providing a wide range of services, including financial and tax advice, and work with clients year-round to maximize savings and minimize what they pay.
If you are considering working with a professional to help with your taxes, be sure to ask about their qualifications and what services they offer. Ask to see their CPA license and what ongoing courses they’re taking to stay up-to-date on changing codes. You’ll likely be getting crucial advice from this person, so make sure it’s someone you trust.