CPA vs Tax Preparer

Both Certified Public Accountants (CPAs) and tax preparers are professionals authorized to prepare and file tax returns. However, in the context of CPA vs tax preparer, the primary difference lies in their scope of work, level of expertise, and licensure. While CPAs are licensed professionals offering a wide array of expert accounting services, tax preparers are non-licensed and specialize in only tax preparation.

Choosing the right type of tax consultant depends upon your specific needs and situation. With their extensive knowledge and training, CPAs are more adept at handling complicated tax situations. Besides filing returns, CPAs also offer other accounting services. On the other hand, a tax preparer is more suitable for taxpayers seeking assistance in simple tax matters.

A CPA is a US state board issued accounting license attained after qualifying the Uniform CPA Exam and meeting its educational and experience requirements. 

The American Institute of Certified Public Accountants (AICPA) works in collaboration with the 55 US State Boards of Accountancies (BOA) and the National Association of State Boards of Accountancy (NASBA) to supervise the licensure exam. 

Licensing Authority

The 55 US state boards or (BOA) have the statutory authority to issue the CPA license. Each state board has its own educational and experience requirements to fulfil for successful licensure. Hence, you must submit an official application for licensure to the respective BOA.

Pre-requisites for a CPA License

CPA licensure requirements vary as per your state board. However, the basic pre-requisites for most state boards are as follows: 

• Education - Bachelor’s Degree with 120-150 credit hours 
• Examination – Score at least 75 on a scale of 0-99 within 18 months
• Experience – ­1-3 years 
• Ethics Exam (if required by your BOA)

Continuing Professional Education (CPE)

CPE is a requisite for CPAs to sustain their accounting license. This enables them to retain their professional acumen and offer quality services. 

CPE requires the CPAs to take up learning programs in relevant subjects and earn credits. The credit requirements vary as per state boards. However, the typical requirement is 40 credit hours annually, every 1-3 years.

Both AICPA and NASBA offer a framework to develop, award, assess, and report CPE programs. The CPE programs must meet the standards set by them. You can either choose from their thousands of hours of free and paid CPE courses or opt for self-study. 

Specialization

The significant difference between a CPA and a Tax Preparer is their respective area of specialization. Unlike the latter, CPAs hold expertise in various accounting fields other than tax.

They have the authorized license to practice further in multiple areas. Hence, their scope of work is much broader. The following are some of the CPA speciality areas:

• Government accounting
• Information management and technology assurance
• Audit
• Financial planning
• Assurance services
• Taxes
• International accounting
• Environmental accounting
• Valuation
• Non-profit accounting
• Forensics
• Management accounting
• Public accounting

Career Prospects

With their extensive knowledge and expertise in finance and accounting, they are suitable to take up any financial position in any industry. The on-job designation for CPAs can range from an objective consultant to a reliable financial planner.

Moreover, there are more than 46,000 public accounting firms (from small companies to large organizations) in the US. Hence, the career opportunities in the public accounting domain itself are pretty large.

Let’s take a look at some of the most in-demand career paths for a CPA. 

Benefits of hiring a CPA

While comparing CPA vs tax preparer, a CPA’s competency is unmatched. Apart from fining returns, CPAs can help you with tax planning too. They ensure you have minimum tax liability while abiding by the law.

Furthermore, since their learning area goes beyond taxation, they are well-equipped to provide you with other accounting services too.  Their valuable insights may assist you in improving your business prospects.

In addition, they also possess unlimited representation before the Internal Revenue Service (IRS). Therefore, they can represent you on any matters related to audit, appeals, or payment or collection issues.

Moreover, with a regulatory body overlooking their work, chances of their committing fraud are greatly reduced. They abide by the professional ethics and moral code of conduct established by the state boards. Thus, in the event of any irregularities, the state board has the authority to revoke their license. Alternatively, tax preparers practice with minimal regulations.

A tax preparer is an umbrella term used for any professional who prepares and files tax returns on behalf of their clients for compensation. There are mainly two types of tax preparers, namely, licensed and non-licensed. Generally, non-licensed tax professionals are referred to as tax preparers.

Eligibility Criteria

The IRS doesn’t impose any education, experience, or licensing requirement for tax preparers to practice. It started the Registered Tax Return Preparer Competency Test for regulating tax preparers in 2011. However, it was discontinued in 2013. Therefore, you don’t have to pass any test to practice as a tax preparer.

However, you must have an active IRS Preparer Tax Identification Number (PTIN) to be authorized to prepare tax returns. This PTIN requirement applies to all tax preparers (including tax attorneys, CPAs, and enrolled agents). IRS-issued PTIN is valid for one year and has to be renewed annually.

Note that requirements for tax return preparers vary by state. It can range from taking a basic accounting or tax course to passing a state exam or nothing. Therefore, check with the state to understand its specific requirements. Then, fulfil the requirements and obtain the PTIN from the IRS after paying $35.95.

Standing with IRS

The non-licensed tax preparers usually fall into two categories depending on their representation rights before the IRS.

First, tax preparers enrolled for the IRS Annual Filing Season Program (AFSP). This program aims to encourage tax preparers to enhance their knowledge and prepare for a particular tax year.

Second, tax preparers with an active PTIN but without AFSP certification. Even without participating in the AFSP, they can file returns for their clients. But note that such tax preparers don’t have any representation right before the IRS.

Annual Filing Season Program (AFSP)

Tax preparers must do the following to participate in the program:

• Renew their PTIN
• Obtain 18 hours of continuing education (CE) from an IRS-approved CE provider (including a six-hour tax law course with a test)
• Abide by specific obligations in Circular 230

The participants receive a Record of Completion after fulfilling all the requirements. This entitles them to limited IRS representation rights. For instance, they can represent the clients whose tax returns they have prepared before IRS employees. However, they don’t have the right to represent them for collection issues or appeals.

Kindly note that the AFSP is an optional program. The benefit of enrolling in the program is that IRS includes AFSP participants in its public directory of tax preparers. This can help them get new clients.

Benefits of hiring tax preparers

Tax prepares are preferred by entities with uncomplicated tax matters. This is because they are not likely to be audited by the IRS and usually may not need representation before it. Also, tax preparers charge less as compared to CPAs.

Moreover, tax preparers are usually preferred by individuals who do not require any other accounting services.

This has been a guide to CPA vs Tax Preparer. Here we discuss the top similarities and differences between the two, along with infographics. You may also have a look at the following useful articles –

• CPA Exam Blueprint
• CPA Exam Tips
• How Hard is CPA Exam?