It’s time to clear up the misconception that all accountants prepare taxes. While working towards my graduate degree in accounting, I was constantly asked by family and friends if I could prepare their tax returns. While I’m always willing to lend a helping hand, I studied accounting because I enjoy working with numbers and wanted to learn how to efficiently and effectively run a business from a financial standpoint, not because I wanted to learn how to prepare my cousin’s tax return. For these reasons, I’d like to shed some light on the differences between accountants and tax preparers.
As I mentioned above, an accountant spends four to five years working towards their bachelors and / or masters in accounting. During this time, you learn about the different types of accounting and start to focus in on the type of accounting you want to do (see below for a more detailed breakdown). An accountant usually has a broad knowledge of the various accounting functions and then deep expertise in specific areas.
Accountants usually fall into three fields: taxation, compliance, and managerial.
An accountant that plans to focus in managerial accounting will learn budget forecasting, variance analysis, and many other accounting metrics necessary for running a business as efficiently as possible. These accountants will monitor costs for their employer, ideally making their way to Chief Financial Officer of the company.
Accounting students that want to pursue a career in compliance generally start with auditing courses, which cover the different types of accounting fraud, methods for uncovering fraudulent activities, the internal controls that a company should set-up to prevent illegal activities, and what steps should be taken if you uncover fraud. Upon graduation, the accountant will try to find work at a public accounting firm – ideally, one of the Big Four Firms. The end goal with this career path is to become a partner at the firm, although most auditors find themselves switching to managerial accounting and working for one of their engagement clients.
Tax accounting is the final broad field that accountants separate themselves into. This type of accounting can be very complex and can take years of training and experience as there are many different tax implications to constantly consider while working with your client. Tax accountants generally help their clients prepare financials in order to best take advantage of tax breaks and discounts. A decision made by the tax accountant in this quarter may have implications on the company’s financials years down the road. It should be noted that this type of accounting is not often seen in smaller businesses. A company needs to reach a certain size in terms of earnings before the benefits of hiring a professional tax accountant outweigh the cost.
The first thing to realize, is a tax preparer does not have to be an accountant or a CPA. Someone without an accounting degree or background can study tax code and take a test to become a certified tax preparer. In general, it takes more memorization to keep up to date with taxation rules than critical thinking.
The tax preparer generally follows a checklist of rules and requirements while filling out your personal or business tax returns. There are definitely advantages to having a tax preparer with more experience, but with any complicated tax issues, it would most likely make sense to bring a tax accountant (CPA) into the picture. But again, note that you must consider the costs and benefits of spending money on a tax advisor. Small businesses will generally not get enough benefit out of an expensive tax accountant to justify the cost.
In the end, there are some similarities between accountants and tax preparers. However, the most important takeaway here is that an accountant / CPA can probably help you file your taxes, while a tax preparer more than likely will not be able to help you with your tax accounting / tax advisory needs. As with anything finance related, you never want to cut corners. Always make sure that you have a trusted and qualified professional helping you.