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. Knowing the different types of tax preparers and credentials can help you get your best tax outcome.
What does a tax preparer do?
Tax preparers complete and file tax forms for their clients. With a sufficient understanding of tax law, a tax preparer can review all of a client’s personal information, including Social Security numbers, income statements, and personal and business expenses, to determine which expenses and circumstances may result in tax deductions or credits. Based on the results of calculating a return, a tax preparer can also offer advice about the best steps to take to reduce their tax liability in the coming year.
Credentialed vs non-credentialed tax preparers
Credentialed tax preparers. Many tax preparers are credentialed professionals who work year-round, primarily on accounting and tax related tasks.
Credentialed tax preparers include:
All three types of tax preparers receive credentials from the Internal Revenue Service (IRS) or a state board.
- 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 include:
- Seasonal tax store employees,
- Volunteer Income Tax Assistance (VITA) program volunteers,
- Tax accountants not Certified by the American Institute of CPAs (AICPA), and
- 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
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,
- Maintaining financial records,
- Certifying financial statements, and
- 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 change on accounting and tax laws.
CPAs are authorized to represent their clients on all matters before the IRS, including,
- Tax audits,
- Payment and collection issues, and
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,
- Pass the IRS’ Special Enrollment Examination, or
- 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
- 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.
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