What Is a Tax Accountant?
A tax accountant is a financial professional who focuses entirely on assisting individuals and businesses with preparing and filing precise tax returns that adhere to all legal requirements.
Tax accountants also use their knowledge of tax law to assist clients in maximizing savings and avoiding penalties.
Tax accountants are governed by the Internal Revenue Code (IRC), a collection of rules that individuals and businesses must follow while filing taxes. This tax system is lengthy and complex, particularly for companies and other organizations.
Tax accountants may work in accounting firms, in accounting departments of prominent corporations, or as a member of the financial team of a small business.
Tax Accountant Duties
The duties of a tax accountant include the following:
- Tax Preparation: Tax preparation involves completing and filing a client’s tax return. It also includes ensuring that all required information is included on the return, calculating the amount of taxes owed, and filing the return with the Internal Revenue Service (IRS).
- Budget Plan Preparation: Tax accountants help clients prepare a budget plan by projecting their annual income and expenses. This allows clients to determine how much money they need to set aside for taxes.
- IRS Audit Representation: Tax accountants may represent their clients in an IRS audit. During an audit, the IRS will examine taxpayers’ financial records to ensure that they accurately report their income, taxes, and expenses.
- Tax Research and Advice: Tax accountants advise clients on how to minimize their tax liability after researching related laws. Their recommendations often include finding deductions and credits that a client may be eligible for.
- Professional Development: Tax accountants must keep up with changes in tax laws and regulations. They do this by attending training and engaging in continuous education yearly.
Tax Accountant Qualifications
Since tax accounting is a specialized field, tax accountants must have certain qualifications to succeed.
Tax accountants are now required to hold a bachelor’s degree in either finance or business to comply with the increasingly complex tax regulations established by all government agencies.
They typically finish a general accounting degree focusing on financial planning, taxation principles, auditing, cost and tax accounting, and the laws governing taxes at the federal, state, and local levels.
In addition, several financial institutions and government organizations require that a tax accountant hold a master’s degree in a specific tax discipline.
A good number of tax accountants are also certified. Certification helps you broaden your skill set and demonstrates to potential employers that you are knowledgeable in a specific area.
The following are some common options:
- Certified Public Accountant (CPA): This credential gives accountants a more comprehensive range of expertise that helps them perform roles other than those related to taxation. Successful completion of a national examination and the fulfillment of specific state requirements are needed to attain this designation.
- Enrolled Agent (EA): This option allows tax accountants to legally represent their customers in front of the IRS. However, it requires them to pass the IRS Special Enrollment Exam and a background check. To maintain this designation, they must also accomplish 72 hours of continued education every three years.
In addition to the qualifications mentioned above, tax accountants must also possess certain skills to succeed. These include:
- Analytical Skills: Tax accountants use analytical skills to examine financial records and identify discrepancies. They must be able to look at a client’s financial situation and determine the best way to minimize their tax liability.
- Advanced Numerical Skills: Tax accountants must be able to quickly and accurately calculate numbers. This skill is essential when preparing tax returns and budget plans.
- Attention to Detail: Tax accountants must pay close attention to detail to ensure accuracy. This is especially important when reviewing financial records for errors.
- Communication Skills: Tax accountants must possess strong communication skills with clients, coworkers, and superiors. This includes being able to explain complex tax concepts in layman’s terms.
- Organizational Skills: Tax accountants must be well-organized to keep track of deadlines, paperwork, and client information. They must also be able to prioritize tasks and manage their time efficiently.
- Knowledge of Tax Law: Tax accountants must thoroughly understand tax law. They must be able to stay up-to-date on changes in tax law and regulations.
- Proficiency in Accounting Software: Increasingly, accountants rely on specialist software and cloud-based technology tools. Mastering both general and tax-specific accounting software is advantageous for tax accountants.
- Expertise in Accounting Best Practices: Tax accountants should have a strong understanding of accounting best practices. This includes financial reporting, account analysis, auditing, payroll, and income taxation.
Cost of Hiring a Tax Accountant
The cost of hiring a tax accountant depends on several factors, such as the size and location of your business. This helps determine the complexity of your taxes.
Generally, the larger and more complex your business is, the more you will pay for a tax accountant. Tax accountants in large metropolitan areas typically charge more than those in smaller cities or towns.
Based on the National Society of Accountants’ (NSA) survey report for 2020-2021, the average hourly fee of CPAs for filing federal/state tax returns was $179.71, while the average hourly charge for other tax services was $174.29.
Tax preparation costs can also depend on whatever forms you file. Below is the average tax preparation cost per form, according to the NSA 2020-2021 Report.
In addition to fees for filing federal and state tax returns, a tax accountant may also charge additional fees for special requests or extra work caused by unorganized files, late filing, or IRS audits.
Should You Hire a Tax Accountant?
Hiring a tax accountant depends on your situation. Here are several situations where hiring a tax accountant might be an appropriate choice.
Lacking the Time or Patience to Deal With Tax-Related Tasks
You may want to consider outsourcing your tax preparation if you believe that the time needed to complete your taxes may be used more productively in other ways.
It is usually better than trying to rush through your paperwork and risk making a mistake.
Planning to Itemize Deductions
Because of the Tax Cuts and Jobs Act’s increase in the standard deduction, fewer filers itemize their deductions.
But if you have substantial medical expenses, a mortgage, or make significant charitable contributions, itemizing your deductions may save you more money than taking the standard deduction.
However, itemizing can be challenging to handle on your own, especially if you are a beginner.
Undergoing a Major Life Change
If you got married, had a baby, bought a home, lost your job, or retired last year, this will impact your taxes.
Tax accountants can help you navigate these changes and ensure you take advantage of all the deductions and credits you are entitled to.
Experiencing Complicated Tax Situations
Almost every financial transaction has tax consequences. Thus, the more financial transactions you have, the more you must consider.
Tax laws are also constantly changing, making it challenging to keep up with the latest rules. If your taxes are complicated, it may be worth hiring a tax accountant to ensure everything is done correctly and all available deductions and credits are taken advantage of.
Owning a Business
If you own a business, you are responsible for ensuring that your company pays the correct taxes. This includes self-employment tax, payroll taxes, and income taxes.
Depending on the structure and size of your business, you may need to file multiple tax returns. Filing business taxes can be complicated, so it is essential to hire a tax accountant who is familiar with business taxes.
How to Find a Tax Accountant
You are not alone if you shudder at the notion of preparing your tax return and wonder how to locate a qualified tax accountant.
According to the IRS, over 58% of the more than 138 million tax returns submitted electronically for the 2018 tax year were prepared by a tax professional.
Finding a tax accountant does not have to be complicated. Here are a few simple steps for you to follow:
Step 1: List Down Prospects
You can ask your friends, family, and colleagues if they can recommend a tax accountant.
You may also check the IRS directory of Preparer Tax Identification Number (PTIN) holders. These individuals have IRS-recognized credentials and include both CPAs and EAs.
People who have completed the Annual Filing Season Program, a series of elective continuing education courses on federal tax law and ethics, are also listed in this database. You can find a licensed tax expert nearby by providing your zip code in the directory.
Another way to find qualified tax accountants is by consulting with state or national associations. Many state boards of accountancy and CPA organizations maintain online member directories or can provide a list of tax pros.
The National Association of Enrolled Agents (NAEA) also maintains a directory of EAs. You can search by location and specialization.
Alternatively, if you earn less than $56,000 or are at least 60 years old, you may qualify for the Tax Counseling for the Elderly (TCE) and Volunteer Income Tax Assistance (VITA) programs.
These IRS-sponsored programs are staffed by volunteers trained to give basic tax prep services. You can find a VITA/TCE provider near you using the VITA/TCE locator tool.
Step 2: Narrow Down Your Options
If you obtained the tax preparer’s name from the IRS, a state board of accountancy, a state CPA organization, or the NAEA, their credentials are likely legitimate.
However, if you acquired the name from a referral, it is prudent to confirm that the individual possesses the certificates they claim to have. You can check the CPA Verify database or the website of your state’s board of accountancy to confirm your prospects’ credentials.
CPA Verify is an online repository of information regarding registered CPAs and public accounting companies.
You may also examine your prospect’s website and social media pages to see the kind of content they share. Online reviews on Yelp, Angie’s List, and Facebook may also be helpful.
Most importantly, you can google their name to see what shows up and ensure nothing is buried by scrolling through the first few pages of search results.
Everyone who interacts with the public may have a few negative internet reviews from dissatisfied customers.
However, if your research reveals red flags, such as a trend of client complaints, inappropriate social media posts, or an arrest record, you may proceed to the next candidate.
Step 3: Interview the Best Candidates
When you have narrowed your list down to two or three of the best candidates, you may set up interviews with them. Tax accounting is a very personal service, so this step will help you see if you work well with your prospects.
Here are some relevant questions you should consider asking:
- What services do you provide?
- Do you specialize in any particular areas of taxation?
- Do you work with businesses or individuals?
- What is your experience?
- How would you handle my specific tax situation?
- What are your rates?
- Are you available year-round or only during tax season?
- Do you have any references I can contact?
Step 4: Make Your Choice
After you have interviewed your best candidates, it is time to make your decision.
Consider all of the information you have gathered so you can select the individual who is the best fit for your needs.
Once you have chosen a tax accountant, sign a contract outlining the expected scope of work, the services provided, and the fees charged. This will help protect you in the event of any disagreements down the road.
Accountant vs Tax Accountant
There are differences between an accountant and a tax accountant.
An accountant may provide some tax services, but their primary focus is on bookkeeping, financial statements, and general business advice. Tax accountants, on the other hand, specialize in tax law and planning.
Generally, accountants record business transactions, report on company performance, and produce financial statements.
Accountants are involved in transactions such as:
- Billing an invoice to customers
- Receiving a supplier’s invoice
- Paying an employee’s salary or wages
- Reconciling a bank statement
Accountants also produce reports in addition to transaction records. These reports include:
- Financial Statements. These are submitted to business owners/operators, lenders, and other creditors. These include income statements, balance sheets, and cash flow statements.
- Management Reports. These are given to business owners/operators to help them make decisions about the company. These reports include break-even analysis, ratios, product sales, cost variances, sales returns, calculation of overtime, and budgets.
- Tax Reports. These are sent to various government agencies. These reports detail income taxes, property taxes, sales taxes, and use taxes.
Tax accountants, on the other hand, specialize in tax law and planning. They help individuals and businesses save money by legally minimizing their tax liability.
Tax accountants also use their knowledge of tax codes to find deductions and create tax-advantaged investment strategies.
While accountants and tax accountants are essential members of any financial team, they serve different purposes. Below is a summary of their differences.
Tax accountants play an important role in ensuring that individuals and businesses comply with tax laws. They can also help save money by taking advantage of deductions and other opportunities to lower their clients’ taxes.
You will need a tax accountant if you have a small business, lack the time and patience to deal with your taxes, or have any other complex financial situation.
Tax accountants can help you with tax planning, preparing and filing your taxes, and representing you in an audit.
When selecting a tax accountant, check your prospects’ references and interview them first.
Once you have chosen, sign a contract outlining the scope of work, services provided, and fees charged.
Tax accountants can be an important asset to your financial team. Be sure to consult with one to ensure that all your financial needs are met.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.