Every business, no matter how small, needs a financial and tax advisor. But your business needs a Certified Public Accountant (CPA), not just an accountant or enrolled agent.
What's the difference between an accountant, a certified public accountant, and an enrolled agent? Here are the qualifications for each profession, licensing, and continuing education requirements.
An accountant is a professional who engages in accounting, by preparing and auditing financial statements, bookkeeping, and financial analysis. An accountant may also qualify to give tax advice and prepare tax returns.
Accountants don't have to take a licensing exam and they are not licensed in a state. They don't have continuing education requirements.
Certified Public Accountant
A certified public accountant (CPA) is a professional accountant who met state qualifications. A CPA is licensed by a state and must keep current with tax laws in order to maintain a license in that state. To be licensed, an accountant must pass the Uniform Certified Pulicant Accountant Examination and meet other education work requirements to become a CPA. Only CPAs can perform mandatory audits for publicly traded U.S. companies.
The CPA exam is a rigorous process over several days, including many facets of financial and tax expertise. After they are licensed, CPAs also must comply with continuing education requirements in order to maintain their licenses.
Think of the difference between CPAs and accountants this way: All CPAs are accountants but not all accountants are CPAs.
An enrolled agent (EA) is a tax law specialist who has earned the privilege of representing taxpayers before the IRS. They must qualify either by passing an IRS test covering individual and business tax returns or through their experience as former IRS employees. Like CPAs, EAs have the highest level of rights to represent taxpayers before the IRS (explained below). They also must adhere to ethical standards and complete 72 hours of continuing education courses every three years.
Tax Preparation and Audits
Any tax professional can get an IRS Preparer Tax ID Number (PTIN), but the IRS sets different levels of rights for representing a client on tax matters and audits.
Unlimited Representation Rights. Enrolled agents, CPAs, and attorneys can represent their clients on any cases involving audits, payment/collection issues, and appeals.
Limited Representation Rights. Tax preparers without the above credentials (including accountants) may only represent clients whose returns they have prepared and signed. They can't represent clients whose returns they didn't prepare and they can't represent clients on appeals or collection issues, even if they prepared the client's return.
|CPA vs Enrolled Agent vs Accountant|
|Do business taxes||yes||yes||yes|
|Represent business at tax audit||yes||yes||limited (only if the accountant did the business tax return)|
|Continuing education required||yes||yes||no|
|Help with payroll and payroll taxes||yes||yes||yes|
|Prepare financial statements||yes||no||yes|
|Analyze financial statements||yes||no||yes|
Probably the biggest reason to use a CPA for your business taxes is that a CPA is eligible to represent you before the IRS in an audit. As noted above, an enrolled agent can represent your business at a tax audit, but accountants who are not CPAs can only represent clients in a very limited manner. If you are paying to have a professional do your tax preparation, make sure this person has full authority to represent you in an audit.
Accountants do the routine work and they can complete tax returns, while CPAs can analyze the work, represent you at a tax audit, and help you make more high-level business and tax decisions. Enrolled agents can do your business taxes and represent you at an audit, but they aren't financial advisors.
Working with CPAs
Find a CPA firm that includes a bookkeeper and accountant. Then you can separate the more routine financial jobs from the tax and financial analysis done by the CPA. Or hire a bookkeeper for those monthly, quarterly and yearly financial reports, then periodically consult with your CPA and have your CPA do your business taxes. You can also ask that the CPA review and sign off on your tax return that may have been prepared by an accountant working under the CPAs direction.
Are you thinking about doing your own business taxes to save money? Consider the complexity of the tax law and the chance of missing something important or doing something wrong. Get help with your business taxes. Paying a CPA now is better than paying that person later to help you sort out a mess or going with you to an audit.
Legal Information Institute. "Accountant." Accessed Feb. 12, 2020.
American Institute of CPAs. "FAQs – Become a CPA." Answer #7. Accessed Feb. 13, 2020.
National Asociation of State Boards of Accountancy. "Maintaining a License." Accessed Feb. 13, 2020.
IRS. "Understanding Tax Return Preparer Credentials and Qualifications." Certified Public Accountants. Accessed Feb. 12, 2020.
IRS. "Understanding Tax Return Preparer Credentials and Qualifications." Accessed Feb. 12, 2020.
IRS. "Understanding Enrolled Agent Information." Accessed Feb. 13, 2020.