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What do all the credentials really mean?

With the income tax season approaching fast, people are taking to the internet seeking out answers to help with their finances. Providing no extensions are granted to do ongoing COVID 19 issues, the tax deadline for S Corporations and Partnerships is on March 15, 2021 and Individual and C Corps will be due April 15, 2021.

So when you go on that search for professional help, what type of professional do you actually need?

Certified Public Accountant (CPA)

A common misconception is that every tax professional is a Certified Public Accountant (CPA). Although many CPAs practice in the area of income tax, the only time a CPA is needed or required is to certify the accounting or auditing results of a publicly traded company to an interested party. Basically attesting to the accuracy of the accounting and to ensure that the Generally Accepted Accounting Principles (GAAP) are followed. Does the average individual or private business owner need this service? Absolutely not. The CPA is an expert in accounting and auditing for large public companies. Personal income taxes are a very small part of his or her training.


So when do you need an attorney? Most attorney's start out with a $5,000 retainer when you walk through the door to do an offer and compromise. These agreements must be followed to the letter or they become null and void. Choose this option very carefully and make sure you can actually afford what you are agreeing to pay. Many people think they need a tax attorney because they are behind on their taxes or have received letters from the IRS or State taxing authority. Yes, if you are being charged with a crime then you should definitely hire an attorney. This includes tax evasion, falsifying income tax returns, and gross understatement of income or tax liability. When jail time is the consequence, an attorney is the only option. Other than that, taxpayers should look for a far less expensive way to get their problem solved.

Enrolled Agent (EA)

The EA is a special designation given by the Internal Revenue Service to a preparer giving him or her specific rights to practice before the IRS in the representation of clients at the appeals level and at the Tax Court. An EA should be qualified to handle any tax issue and may be willing to represent taxpayers in the audit process. The EA is accepted in all 50 states so no additional certification is required at the state level.

PTIN, AFSP, State Credentialed Preparer (California CTEC)

This level of certification is where most tax professionals reside. California, along with New York, has very stringent requirements for individuals who wish to work as income tax professionals. In California, applicants must complete 60 hours of initial training, pass a state mandated exam, and then must maintain a minimum of 20 hours of training per year in order keep his or her right to practice. Preparers are all registered with the IRS as well as the state of California and are subject to severe disciplinary actions for any unethical behavior or wrongdoing. Preparers under this certification have representational rights before the IRS and State authorities in which they are registered.

So which level of service so you need? I guess that depends on how complex your tax problem is and how much you want to spend. A typical CPA will charge $800 for a small business return that a CTEC preparer will charge $350 for. The only difference is the price. The bottom line, investigate your tax preparer to ensure he or she is legitimate and in full compliance with whatever credential he or she claims to have. Now that you know the difference, the choice is yours!

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