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When tax season rolls around, it’s easy to feel overwhelmed. Between understanding law changes and gathering the proper documents, you may find yourself wishing you had a guide to help you navigate corporate tax accounting. Finding the right help can make all the difference in your experience. In this article, we’ll help you choose between a tax preparer and a CPA. Both can help with your corporate tax accounting, but they offer different services and levels of expertise. Understanding the differences can help you pick the best fit for your business.
To further help you achieve your goals, Haven offers accounting services for small businesses. Our team can help ease the burden of tax season, ensuring you achieve the best possible outcome.
Table of Contents
Tax Preparer vs CPA: Choosing the Best Fit for Your Business
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What is a Tax Preparer?
A general tax preparer is more of a catch-all term that usually doesn’t require a bachelor’s degree. There are three common types of tax preparers:
1. Enrolled Agent (EA)
An enrolled agent (EA) is either a former IRS employee or has passed the IRS’s Special Enrollment Examination, the highest certification level of the IRS. The exam covers topics like tax preparation for businesses and tax procedures. An enrolled agent must complete 72 hours of continuing education every three years and obtain a Preparer Tax Identification Number (PTIN). Like CPAs, enrolled agents can speak with the IRS on your behalf during tax audits, collections, or appeals.
2. PTIN Holders
Preparer tax identification number holders have earned their PTIN and provide tax preparation services. They’re not credentialed and cannot represent clients before the IRS.
3. Annual Filing Season Program Participants
Annual Filing Season Program participants have finished the IRS’s Annual Filing Season Program, though depending on their state, they may not need to pass an exam. Like PTIN holders, they are prohibited from representing clients. Tax preparers typically cost less to work with than a CPA, since they only offer tax preparation services. Some work on hourly rates, though many will charge a flat fee.
Non-Credentialed Preparers
Individuals who prepare taxes without a credential from a third-party organization are non-credentialed preparers. Instead of meeting the requirements of a third-party issuing organization, non-credentialed tax professionals may be self-taught or have received training provided by a tax preparation store where they work on a seasonal basis. Non-credentialed tax preparers often include:
Seasonal tax store employees
Volunteer Income Tax Assistance (VITA) program volunteers
Annual filing season program participants
Non-Credentialed Tax Preparers Explained
Tax preparers working or volunteering with these businesses and organizations can carry credentials and prepare tax returns, but they are not required to in most cases. Unlike CPAs, EAs, and tax attorneys, many non-credentialed tax preparers only provide tax preparation assistance for a few months of the year during tax season.
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What is a CPA?
Certified public accountants are accounting professionals who have passed both the privately issued CPA exam and public licensing requirements. If you need someone to look at your money, they’re the cream of the crop. Here’s what you need to know about the CPA. You’ve probably heard people talking about working with a CPA, especially at tax time. Still, many people are not aware of all the other ways that a certified public accountant (CPA) can help with your money and your financial goals. Here are just a few ways:
Helping you proactively plan for your life goals.
Tax planning (beyond just filing your return, a CPA can help you proactively save money on taxes and make sure you’re not missing any planning opportunities).
Setting up a business, including your side hustle.
Financial statements to help you get a mortgage or other financing.
Retirement account distribution planning.
Financial projections for all your savings goals.
How CPAs Support Your Financial Life
The list goes on. If it affects your finances, a CPA can help. CPAs have hands-on experience working with individuals like you, facing a variety of financial challenges and opportunities. They will listen to your concerns and offer solutions that best fit your needs. In particular, CPA Financial Planners are uniquely qualified to help you weave your tax planning into your life planning through year-round conversations and personal financial planning expertise.
Why Hire a CPA?
CPAs are accounting professionals. It’s their job to stay informed and up-to-date on all laws, rules, and regulations related to accounting and taxation. Their knowledge helps ensure your company won’t fall victim to critical accounting mistakes that could come back to haunt you.
CPAs May Be Able to Save You Money
CPAs can help minimize your tax bill by taking advantage of all potential deductions and credits you can claim and advising you on tax planning and strategic financial decisions.
CPAs Can Save You Time
According to the IRS, it takes approximately eight to 13 hours to complete an individual tax return, while business returns can take an average of 24 hours. Freeing up this time (and removing the accompanying frustration) by relying on a CPA to complete your returns allows business owners to focus on their core business competencies instead.
CPAs Are Adept at Dealing with the IRS
If you’re audited or owe back taxes to the IRS, your CPA can help resolve the issue in your favor. Their knowledge and participation can minimize penalties, lower assessed taxes, and give you more time to pay what you owe.
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Tax Preparer vs CPA: Understanding the Key Differences?
A key difference between CPAs and tax preparers lies in their education and certification. CPAs must complete a formal degree in accounting or a related field, meet experience requirements, and pass the Uniform CPA Examination. CPAs are required to complete continuing professional education (CPE) annually to maintain their license. In contrast, a tax preparer does not need formal education or certification to offer services. While some tax preparers choose to pursue credentials such as the IRS’s Annual Filing Season Program or enroll in training courses, these are optional. As a result, the entry barrier for becoming a tax preparer is considerably lower.
Services Provided: Beyond Tax Preparation
CPAs offer a broad range of financial services beyond tax preparation. These can include tax planning, business consulting, auditing, financial reporting, and forensic accounting. Their training enables them to handle complex tax scenarios such as those involving multiple income sources, ownership structures, or international considerations. Tax preparers primarily focus on preparing and filing tax returns accurately and efficiently. While some may offer basic advice, they are generally not equipped to manage intricate financial matters or long-term tax strategies. Their scope of work tends to be narrower and more transactional.
Professional Standards: The Importance of Regulation
CPAs are regulated by state accountancy boards and are held to stringent ethical and professional standards. They must comply with a formal code of conduct, and failure to do so can lead to disciplinary action, including loss of licensure. Tax preparers, unless they are also licensed professionals (such as Enrolled Agents or CPAs), are not bound by the same regulatory oversight. Although some professional organizations offer codes of conduct and voluntary credentials, these are not mandatory, and enforcement is limited.
Cost: Weighing the Financial Trade-Offs
Due to their qualifications and breadth of services, CPAs typically charge higher fees than tax preparers. For individuals or businesses with complex financial needs, the additional cost may be worthwhile given the expertise and strategic advice a CPA can provide. On the other hand, tax preparers usually offer more affordable services, making them a practical option for individuals with straightforward tax filings. Their fees are generally lower, reflecting their narrower scope of responsibility.
Liability: Who's Responsible for Errors?
CPAs are held to a higher standard of liability. If they make a significant error or omission that results in a financial loss for a client, they can be held accountable and potentially face legal consequences. Many CPAs carry professional indemnity insurance as a safeguard. Tax preparers, while still subject to penalties and fines from the IRS for incorrect filings, typically bear a lower level of professional liability. Nonetheless, inaccurate or negligent preparation can still have consequences for both the preparer and the client.
Client Base: Who Are Their Clients?
CPAs work with a diverse range of clients, including individuals, small and medium-sized enterprises, large corporations, non-profit organizations, and occasionally public entities. Their services are often retained year-round for strategic planning and ongoing financial oversight. Tax preparers are more likely to serve individual clients, particularly those with basic or seasonal tax needs. While some may work with sole traders or tiny businesses, they generally do not cater to more complex financial structures.
Tax Preparer vs CPA: Choosing the Best Fit for Your Business
When it comes to tax season, small business owners have options. Both tax preparers and certified public accountants (CPAs) can assist with the business’s tax obligations. They offer different levels of service and expertise. Choosing the right fit for your business depends on your unique needs and circumstances.
What Can a Tax Preparer Do for Your Business?
A tax preparer, also called a tax professional, can help you file your tax return. They typically have some formal training, either through continuing education courses or a college degree. But they may not have any specialized licensure or certifications.
When to Choose a Tax Preparer
If your business has simple tax needs, a tax preparer can be a cost-effective option. They can help you accurately complete and file your return, especially if there are no significant complexities involved. A tax preparer may not offer much in the way of financial advice, and they generally have less experience than CPAs. As your business grows, you may find that a tax preparer no longer meets your needs.
How Can a CPA Help Your Business?
A certified public accountant, or CPA, is an accountant who has passed the CPA exam and met state licensing requirements. All CPAs must have formal training in accounting, and many have years of experience working in the field before obtaining their license. CPAs also complete continuing education courses to maintain their licenses and stay current with the latest tax laws and regulations. You can think of a CPA as an accountant with superpowers.
How CPAs Support Strategic Tax Planning
CPAs bring more profound expertise than tax preparers, especially when it comes to complex tax situations and proactive planning. They can help you develop strategies to minimize your business’s tax liability and identify opportunities for savings. CPAs also understand how companies of all types operate, allowing them to tailor their advice to your unique situation. Many CPAs specialize in specific areas of tax accounting. For instance, a tax accountant can help develop proactive strategies to reduce tax liability. In contrast, a compliance-focused accountant is well-versed in state and federal regulations, ensuring your business remains compliant and avoids audit risks.
When to Hire a CPA
A CPA is typically the better choice if your business is navigating more complex financial territory. You should consider hiring a CPA if:
Your tax return involves multiple income streams, forms, or schedules
You want to build a long-term tax strategy beyond annual filing
You’re seeking peace of mind on compliance with tax laws and regulations
You are concerned about the possibility of an audit
You need to resolve outstanding tax filings or organise several years of back taxes
In such cases, the higher upfront cost of a CPA is often offset by the value they bring in reducing risk and identifying longer-term tax-saving opportunities.
When to Hire a Tax Preparer
A tax preparer may be the right fit for businesses with straightforward tax filing needs. This includes:
Businesses with simple tax situations and minimal reporting requirements
Those confident in their compliance and not at risk of an audit
Business owners seeking a more budget-conscious approach to tax filing
Tax preparers can accurately and affordably complete and file your return, especially if there are no significant complexities involved.
When to Switch from Tax Preparer to CPA
As your business evolves, so might your tax needs. Many small businesses begin with a tax preparer and transition to a CPA as their operations expand or finances become more complex. The key is to carefully assess your current position and choose the option that best supports your business goals and compliance responsibilities.
Book a Call to Learn More About our Accounting Services (Trusted by 400+ Startups)
Haven eases the burden of financial management, so you can focus on building your business. The accounting company specializes in working with startups, so they understand the unique tax and bookkeeping needs of growing companies, including how to save money and stay compliant as you scale.
Why Choose Haven for Your Startup's Finances
Haven’s team of CPAs and accountants can help you with everything from daily bookkeeping to tax prep and planning, R&D credits, and fractional CFO services. As a Haven client, you’ll never miss a deadline and will save time and money in the process. With over 400 startups and counting, the company will put cash back in your pocket while you access 24/7 support from a team that understands your business.
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