CPA, EA, Tax Preparer... What's The Difference?
As bookkeepers we work with our clients and their tax professional to make sure that all of their information is ready and available when it's time to file taxes. Sometimes we get asked to help a client find a tax professional and other times they've already found some people they are interested in possibly working with, but the different titles throw them off. One person is a CPA, the other holds an EA title, and still others may have different titles. So what do these titles mean to someone wanting to get their taxes done?
The most common title that people run across is the Certified Public Accountant or CPA. In order for an accountant to become a CPA they must meet a few requirements which vary by state. They must first have an educational background in accounting. Often times this equates to a Masters degree, but the CPA may not have to have actually graduated with a Masters, they may just need so many credits that equate to a Masters. They must also have experience in the accounting field, some states require that they work under another CPA for a certain number of years. Finally they must pass a series of tests that go over a wide range of topics, from auditing to regulation and tax. CPAs are then required to complete a certain number of continuing education credits every year. Being a CPA does not mean that the accountant specializes in tax, many CPAs will never file a tax return in their life and instead prefer to focus on tasks such as auditing. Many CPAs that offer tax services are a safe bet in terms of their knowledge base for small business returns. Because the CPA status is awarded on a state-by-state basis it is important to find a CPA that is licensed to work in your state. Although tax preparation does not fall under a CPA only duty there are some states that require a tax preparer to register.
An Enrolled Agent (EA) on the other hand is a federally recognized title given by the IRS to an individual who has passed a series of tests on taxes. The tests cover taxation only and allow the individual to prepare taxes across the U.S. An Enrolled Agent in some states has more rights than a CPA when they are working on out-of-state clients. Enrolled Agents are not required to have a specific educational background or a certain amount of experience preparing taxes. They are however required to earn a certain amount of continuing education credits annually. EAs often times are a tax based practice and specialize in tax services. Because it is a tax only title EAs are a great source of knowledge and are often very competent preparers. EAs are granted the same right to represent a client before the IRS as a CPA and a tax attorney.
Those are the two main tax titles that small business owners come across, but I think it's important for us to cover what is actually required for someone to register with the IRS to prepare taxes. There are very few regulations for tax preparers, one must simply register with the IRS as a preparer and to eFile if they are efiling returns. There is not a test that one has to take to make sure that they have the knowledge or skills required to prepare taxes. Because of this it is very important to make sure you have a tax preparer that knows what they are doing and is experienced. CPAs and EAs are normally a safe bet because they have been tested on their knowledge base. If you are in an industry that has specific tax implications (such as farming) you will want to make sure you are using a tax preparer that is experienced with that industry. Often times a tax professional will refer a client out if they have abnormal tax needs that the tax professional is not aware of. If you have a tax situation that requires representation you will want to hire either a CPA, EA, or tax attorney to represent you in front of the IRS.