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Choosing the Best Accountant for You or Your Business

Updated on April 12, 2011
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Keith Schroeder writes The Wealthy Accountant blog with 30 years experience in the tax field. He is the tax adviser of Mr. Money Mustache.

The most common question a new client asks me is: What do you charge? A better question is: Do you handle tax/accounting/financial/investment/college planning/payroll issues? Your specific needs will determine if the tax/accounting/legal/investment professional is best for you.

There are seven different professionals in the accounting arena and each perform different tasks with potential overlap. The seven accounting professionals are: tax preparer, public accountant, certified public account (CPA), enrolled agent (EA), payroll service, bookkeeping service, and investment/financial planning professional. Investment professionals include fee-based planners, college planners, annuity and other insurance sales people, stock brokers and other securities sales people, advisors, and consultants.

This article will review which accounting professional is the best for your needs. Investment and financial planners will not get covered in this hub. Attorneys also provide services in the accounting arena, but since attorneys are legal professionals, they will not be covered either.

It is important to focus on the professional best suited to handle your situation. No two tax preparers or accountants are the same. Experience, area of practice, and fee structure all play a role. Not all accountants take on new clients during busy times of the year. Your dream accountant may require advance planning.

The most important thing to consider when choosing an accountant cannot be asked as a question. Personality plays a large role in how well the client/accountant relationship works. An aggressive tax preparer will never work well with an ultra conservative individual.

Tax Preparers

People think tax preparer when getting their taxes prepared. However, tax preparers cover the largest swath of potential choices among professionals. Please note that of all professional areas covered here, the tax preparer arena has the greatest risk of containing a scam artist.

Some tax professionals are licensed and require continuing education. The IRS has started requiring all tax preparers that sign a return for payment register with the IRS. Continuing education requirements will begin in a few years. Until then, a tax preparer can claim they are a tax professional by hanging a sign saying they are in business.

Since it is your hard earned money, demand that your tax professional is really a tax professional. This means either an enrolled agent (tax professional) or CPA (accounting professional). A simple tax preparer is not enough.

Public Accountants

The public accountant designation is similar to the tax preparer. There are no education, competency, or training requirements for public accountants. Anyone with a copy of QuickBooks can jump into the public accounting business. Do not confuse a public accountant with a certified public accountant. CPAs are educated, regulated, must meet continuing education requirements, and are licensed by their state of practice.

Tax preparers and public accountants without designations are best avoided. If an individual holds themselves out as professionals but have neglected to invest in a quality education in the industry, they are best crossed off your list.

Certified Public Accountants

CPAs are the most misunderstood profession on our list. Many assume that a CPA is a tax pro and some are. However, a certified public accountant is an accounting professional that may or may not have expertise in the tax field. As an enrolled agent I hire CPAs. I also have CPAs as clients. I even have a tax office as a client as their real focus is investments. It does pay to know.

Unlike enrolled agents, CPAs are licensed by each state they practice in. There are certain rules most states follow before allowing an individual the CPA designation. As a rule, a CPA candidate must first complete 150 college credits, 24 in accounting issues; must attain a bachelor’s degree; must pass the Uniform CPA Exam; and must pass the Ethics Exam. A successful candidate is granted the CPA designation and must have a minimum of 40 continuing education credits per year thereafter to remain a CPA.

CPAs tend to charge the most among tax, accounting, bookkeeping, and payroll services. CPAs also tend to have the highest level of knowledge, expertise, and professionalism. A CPA is not a guarantee of excellence, but at least you know they made the effort to become a professional.

Always ask a CPA if their practice focuses on tax preparation and planning before engagement. Some CPAs preparer taxes on the side when their real focus is financial accounting.

A CPA is the only professional that can provide certified financial statements and perform financial audits (not to be confused with a tax audit). Unaudited financial statements are prepared by all accounting professional designations, but only the CPA handles certified financial statements and audits.

The services provided by CPAs is vast and sometimes confusing. The CPA should spend the necessary time to understand you and your needs. Ask questions. If you do not understand, ask again until you do understand. Accounting professionals are not cheap so take your time and get it right.

Enrolled Agents

Most people have no idea what an enrolled agent is. An enrolled agent is a tax professional that is “Enrolled to practice before the IRS.” The words in quotes are exactly as the IRS requires.

Enrolled agents have no education requirements prior to taking the IRS Special Enrollment Exam. The exam is difficult with only about a third passing all parts of the exam in any given year. All parts of the exam must be passed before granted enrolled agent status. Once an individual is an enrolled agent they must complete an average of 24 hours of continuing education each year.

Only enrolled agents, CPAs, and attorneys can represent a client before the IRS. You need one of these professionals in a tax audit. Enrolled agents have limited attorney/client privilege and represent you, not the IRS or government in any capacity. An enrolled agent is not enrolled to work as an agent of the IRS, but as an agent to practice before the IRS.

Enrolled agents generally charge the lowest tax preparation fees among the tax professionals. Many enrolled agents have CPAs in their office. If you need CPA and enrolled agent services, ask. Some enrolled agents prepare taxes only and are not available all year around. Ask. Some enrolled agents handle tax audits, some don’t. Ask. Some enrolled agents handle bookkeeping and payroll. If you have a business it is generally best to have one office handle all the accounting needs. Ask.

Payroll Services

Many tax offices now contain a payroll department for their business clients. A small business should discuss the payroll services provided by a firm. Payroll is a complex area of tax law and you can get in big trouble quick. If payroll taxes are not paid on time the penalty is 100%, plus interest and the original tax; enough to bankrupt any business. Payroll is best handles right the first time.

Even though payroll must be handled correctly the first time, there are different ways in which a payroll service will handle transactions. A payroll service can produce payroll on your checks or require you deposit the entire payroll with the service and they print on their checks.

The largest area of concern for the business person is payroll deposit of taxes. The payroll service can make the deposits right from your business checking account. This allows you easy verification and proof payment was made. If the payroll service collects the entire payroll including payroll taxes, verify they actually made the deposits. If they don’t, you are still liable.

Bookkeeping Services

Some bookkeepers prepare taxes on the side and generally fall into the category of public accountant or unlicensed tax preparer. For simple returns this is not an issue, but if you use a bookkeeping service it is probably because you have a business. Businesses should use an enrolled agent or CPA to file their taxes.

Bookkeeping services are lower in cost than most accounting offices. Most tax preparers and accounting offices open year around offer bookkeeping services. Always ask the bookkeeping service how they handle working with a specific accountant of your choice.It is easier to employ an enrolled agent or CPA to handle all your bookkeeping and tax needs. Accounting offices may charge a lower hourly rate for bookkeeping than tax and other accounting issues. The training and overhead required is significantly less for bookkeeping than tax and accounting services. Bookkeepers are paid less than CPAs, enrolled agent, or payroll specialists.

Final Thoughts

Come prepared. Call several accountants and set an appointment. It is best to sit face to face with the person you will work with on a regular basis at the firm. Prepare your questions in advance. Gear the questions to your specific needs. The last question asked is about fees.

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