What Is a Tax Preparer?
A tax preparer is an individual who prepares, calculates, and files income tax returns on behalf of individuals and businesses. There are several different types of tax preparers, with some having credentials issued by third-party organizations while others are non-credentialed preparers. If you want to find a tax preparer to help you file your taxes, learn about the different types and their credentials so you can get your best tax outcome.
Key Takeaways
- A tax preparer prepares, calculates, and files your income tax returns, whether you're an individual or a business.
- Your tax preparer should review your personal information to pinpoint potential tax deductions or credits that could save you money.
- Credentialed tax preparers, such as certified public accountants (CPAs), enrolled agents (EAs), and tax attorneys, hold official credentials from the IRS or state boards.
- Non-credentialed tax preparers might be self-taught or have received training from tax preparation stores.
What does a tax preparer do?
A tax preparer is a professional who assists individuals, businesses, and organizations in preparing and filing their tax returns. Their duties can vary based on their qualifications and specific state requirements, but typically include the following:
- Gathering financial information: Collecting and organizing clients' financial records, including income statements, receipts, expense documentation, and other relevant financial data.
- Filing returns: Completing and filing state and federal tax returns on behalf of their clients, using applicable forms and ensuring that they comply with tax laws and regulations.
- Applying deductions and credits: Identifying and applying potential tax deductions and credits that can reduce the amount of taxes owed, ensuring clients pay the minimum legal tax liability.
- Ensuring compliance: Staying up to date with changes in tax laws and regulations to ensure that all prepared returns comply with current tax codes.
- Advising clients: Offering advice on tax planning and strategies to maximize tax benefits in future years. This can include recommendations on charitable contributions, retirement planning, and other financial decisions that have tax implications.
Credentialed vs non-credentialed tax preparers
Tax preparers come in a range of types that are mainly distinguished by their credentialing. Some have educational credentials. Some have IRS credentials. Some have state licensing credentials. And some have no credentials at all. Your goal should be to find a tax preparer with the level of credentials that matches the requirements of your filing situation.
Credentialed tax preparers
Many tax preparers are credentialed professionals who work year-round, primarily on accounting and tax related tasks.
Credentialed tax preparers include:
- Certified Public Accounts (CPAs)
- Enrolled Agents (EAs)
- Tax attorneys
All three types of tax preparers receive credentials from the Internal Revenue Service (IRS) or a state agency.
- CPAs receive credentials from state boards.
- EAs receive credentials from the IRS.
- Tax attorneys are licensed by state bar associations.
Non-credentialed tax 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
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.
Types of credentialed tax preparers
There are substantial differences even among credentialed tax preparers. Generally, the higher their credentials, the greater their expertise, but also the higher their costs. For example, tax attorneys generally have two degrees and are licensed by the state. Their services fill a particular niche, but their costs reflect that. It’s best to match the tax preparer’s credentials as closely as possible to the type of tax situation you face now and what you might face in the future.
Certified Public Accountant (CPA)
As the name suggests, a CPA has been certified by a state or governmental territory as having attained the required skill level in areas of accounting and tax preparation, including:
- preparing individual, business, trust, estate, non-profit, and gift tax returns
- providing tax, financial, business, and estate planning services
- maintaining financial records
- certifying financial statements
- conducting audits
To become a CPA, an individual must pass the Uniform Certified Public Accountant Examination, a comprehensive test given by the American Institute of Certified Public Accountants and be licensed by the state in which they work.
- More than forty states require CPAs to pass an ethics exam prior to licensing.
- All states require CPAs to take continuing education courses to remain up-to-date on changes in accounting and tax laws.
CPAs are authorized to represent their clients on all matters before the IRS, including:
- tax audits
- payment and collection issues
- appeals
TurboTax Tip:
Knowing the different types of tax preparers and their credentials can help you secure the best possible outcome on your taxes.
Enrolled Agent (EA)
An EA is an individual licensed by the IRS to represent clients in any matter before the IRS. To become an EA, an individual must either:
- pass the IRS' Special Enrollment Examination
- if they are a former IRS employee, have certain work experience
Once certified by the IRS, EAs are required to stay up to date on changes in the tax law by completing at least:
- 16 hours of continuing education each year, including at least 2 hours in ethics
- 72 hours of continuing education every three-year period
Tax attorney
A tax attorney is an attorney who specializes in tax law. A tax attorney usually must:
- earn a college degree and then a law degree
- pass a state bar exam
- obtain a state license, which often involves meeting certain standards of character
- continue their education throughout their careers
Tax attorneys use their in-depth knowledge of tax and business laws to advise clients on the legal aspects of their taxes. They can also prepare their clients' tax returns and are authorized to represent their clients before the IRS on all tax matters.
How to find a tax preparer
Before beginning your search for a tax preparer, take a moment to review your tax preparation needs. Is your return simple or complex? Are you going to itemize deductions because you have home mortgage interest or large medical expenses to deduct? Or will you likely take the Standard Deduction? Or are you unsure?
If you’re employed by a company and don’t itemize, you might be able to use a less credentialed and experienced tax preparer. If you have multiple streams of income and many deductions, or if you’re filing as a business, you might want to go with a higher level of tax preparer, like a CPA. If you’re dealing with complicated tax law issues, you might consider a tax attorney.
Once you’ve assessed your situation, you’ll want to find a tax preparer who is properly credentialed and registered with the IRS. They’ll need an IRS Preparer Tax Identification Number (PTIN) so they can sign your return and file it electronically. They need to be a Federally Authorized Tax Practitioner (FATP) so they can represent you before the IRS on tax matters. You can find such tax preparers in the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. It lists tax preparers in your area who currently hold professional credentials recognized by the IRS, including PTIN and FATP. You can select to search among:
- Attorneys
- Certified Public Accountants
- Enrolled Agents
- Enrolled Actuaries
- Enrolled Retirement Plan Agents
- Annual Filing Season Program Participants
The IRS search tool allows you to narrow your search by country, zip code, and distance. If you’re looking for a CPA in your area,you can double check to make sure their license is up to date. Just type their name into the CPA Verify tool to confirm that they’re in CPAverify.org’s national database of licensed CPAs. To make sure a tax attorney is active and licensed, you can contact your state's bar association. Many states have websites with searchable databases.
If meeting face-to-face with a local tax preparer isn't a priority for you, consider setting up a virtual meeting. Typically, you can provide your tax preparer with the necessary documents electronically. Many tax preparers now offer live assistance. TurboTax Live Assisted and Live Full Service plans let you consult with a nearby tax preparer online. You can contact them as often as needed through the tax filing process so you can get help in real time.
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