Keeping it professional: tax edition!

As the Post-it says… it’s tax time! Have you started thinking about your taxes yet? Tax day isn’t until Monday, April 18 this year, but the season technically started on January 24.

If you’ve filed yours already, you’re ahead of us — we’re normally late-February-to-mid-March filers, because we’re waiting on a flurry of forms and they aren’t all ready right away. (And then we’re regular humans and we put it off for a couple weeks while saying “We should really start pulling our tax stuff together,” and not doing it.)

This year’s not our most complicated year ever (that would have been 2015: have a kid, sell a house, sell investments, buy a house, employ a nanny)… and we still have four W-2s between us, investment and banking documentation from three different financial institutions, two or three different childcare statements, property tax info for our house and cars, and a stack of donation receipts because our generosity practice is an important part of our life.

We favor a largely DIY approach to our finances, but there are a few professionals we’ve called in to help us. As a small family that has seen a handful of complicated tax years, one of these pros has been a Certified Public Accountant (CPA). 

In general, accountants keep financial accounts for individuals and/or companies, and they can also provide advice on federal and state tax issues. If you are a small business owner/entrepreneur, at some point you will probably want to hire someone to help with your financial accounts. For tax-specific needs, you can hire a CPA or an attorney; you can also hire a professional called an Enrolled Agent (who may not be an accountant but is a tax expert). Here are some of the distinctions you might want to keep in mind. 

  • Bookkeepers operate on more of a tactical, transactional level, focused on ongoing financial record-keeping around things like sales, bills, and payroll. You do not have to have a certification to work as a bookkeeper, although it can help. 
  • Accountants can do everything a bookkeeper does, plus a level of operational analysis and reporting to assess the financial health of a company and make recommendations. Most (but not all) accountants have a degree in accounting, and there are a few different professional certifications available for individuals in the accounting field… the gold standard of which is the CPA license.  
  • CPAs are super-accountants who have met state licensing requirements, passed a national test, and are required to keep up with continuing education requirements. All CPAs are accountants; not all accountants are CPAs. CPAs can do things like file your taxes for you, sign your tax returns, and represent you with the IRS (including during tax audits). We have a CPA that we love who has been worth way more than what we pay her. (This endorsement/referral is completely uncompensated; we are just very happy customers.) 

    During a couple of our more complicated years, she really delivered for us by fielding questions with the IRS. (We weren’t audited, we were just confused.) CPAs can also help you out with payroll stuff, whether you have a small business household employee like a nanny. 

    On the small-business side, CPAs can also perform “attestation,” which is when they offer a conclusion about the reliability of a company’s financial statements, which is useful for a small business that might be taking out a loan, taking equity investments, contracting with the government, doing specific types of crowdfunding, or selling the company. CPAs can also shine by helping identify areas for improvement. 

    CPAs are generally more expensive than a non-CPA accountant, but I personally think it’s worth it if you require CPA-level services. CPAs provide excellent support for both tax preparation and ongoing recordkeeping needs. Many CPAs have interstate reciprocity, so you don’t necessarily have to live in the same state as your CPA (this is especially helpful if you move!). 
  • Tax attorneys are state-licensed professionals and are held to both continuing education and professional ethical standards. Tax attorneys can help with tax preparation and planning and provide advice on both federal and state tax issues. Only tax attorneys can represent you in Tax Court with the IRS. 
    A tax attorney would be an ideal professional to help with a complicated or high-risk situation involving tax planning or a tax-related dispute; some tax attorneys are also dual-licensed as CPAs. Tax attorneys will probably be the most expensive of the tax professionals and might be overkill for simple tax prep, but they’re the best (and maybe only) professionals for more intense situations. 
  • Enrolled Agents (EAs) are not necessarily accountants but are included in this list because they are tax experts. They have passed a special exam and are licensed by the IRS; they also have to complete 72 hours of continuing education every 3 years. They can work across state borders and can represent you to the IRS in everything except Tax Court. Unlike CPAs, EAs cannot perform attestation duties. 

If you’ve ever used one (or more!) of these professionals, I’d love to hear your thoughts. And if you have any questions for a CPA, please reach out and I’ll ask mine! (Although it might take a minute for her to get back to me. It is, after all, tax season.)

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