Tax preparer, business advisor, accountants and bookkeepers are all terms that you’ll hear in the business world. These terms are quite confusing to any business owner – not just a creative or handmade business owner. In this article I’ll provide you with information about each of these professionals and what they do.
The term “Tax Preparer, Tax Professional, or Tax practitioner” are all general terms. Just like the term “handmade or creative business” owner. It means more than one thing or in this case, more than one type of person who is qualified to prepare your tax return.
The IRS website says:
“Any tax professional with an IRS Preparer Tax Identification Number (PTIN) is authorized to prepare federal tax returns. However, tax professionals have differing levels of skills, education and expertise.”
Types of tax professionals – their educational background and what they do.
Enrolled Agent (EA) – are licensed by the IRS and must pass a three part exam. They are required to demonstrate their ability in tax planning, individual and business tax return preparation and representation. They must complete 72 hours of continuing education every 3 years and/or 16 hours per year. Enrolled Agents specialize in taxation/tax preparation and can represent clients before the IRS during an audit, collection or appeals process. For more information about Enrolled Agents click here.- Certified Public Accountants (CPA) – are licensed in each State by the Board of Accountancy. CPA’s have passed the Uniform CPA Exam. They have attended college and have a Masters Degree in accounting. Each state has different continuing education requirements. CPA’s can offer a variety of services or specialize in tax prep and planning. For more information on what a CPA does or can do, click here.
- Attorneys – are licensed by State courts or the State bar. They usually also have continuing education requirements like Enrolled Agents and CPA’s. Attorneys may offer a range of services and some may specialize in tax preparation and planning.
While Enrolled Agents, CPA’s, and Attorneys may focus on tax preparation. They usually do not know how to use whatever software program you use to do your bookkeeping in.
In my 30+ years of experience, I’ve worked with many tax professionals who have relied on the reports generated by your bookkeeping/accounting software in order to file tax returns.
Be very careful about a tax professional who also offers bookkeeping services.
Some will offer to do your bookkeeping for you – but you MUST understand that very few will actually do the bookkeeping. They either have a staff of in-house bookkeepers who will perform the actual bookkeeping tasks or they will outsource the bookkeeping services to others. In some cases they outsource the bookkeeping services outside of the U.S.
Be sure to ASK:
- if they have an in-house staff of bookkeepers
- will outsource your bookkeeping to an outside service
- and always ask if the outside service is U.S. based.
I’ve seen and helped clean up a LOT of horrible bookkeeping messes made by outside services.
What is a business advisor?
A business advisor or consultant works with you on strategy, planning and problem solving. They help you learn business skills and obtain knowledge. Some will analyze or help you develop a business plan or financial statements in order to help you with investments, marketing, and possible funding opportunities.
What is an accountant?
Accountants take a look at a business’ financial health from a much broader perspective. Accountants usually have a Bachelors Degree in accounting but have not yet taken the CPA exam.
An accountant is more than capable of performing all the same duties as a bookkeeper but usually is a better resource if you’re making any long-term financial business decisions.
Meaning that while an accountant is capable of doing everything that a bookkeeper does – they seldom process ALL of the paperwork involved in a companies business transactions.
Additionally, accountants or CPAs are responsible for:
- ensuring that your business is in compliance with tax laws
- preparing your tax returns at the end of the year.
- reviewing deductions and credits that you may be eligible to take
- analyzing your books
- looking for sales trends and discrepancies
What is a bookkeeper?
First, let’s look at the definition of a bookkeeper.
“A bookkeeper is a person whose job is to keep track of the records and financial affairs of a business.”
Bookkeeper’s can fall into one of three categories:
- Can be employed by a company to record daily transactions – sales, purchases, payroll, collection of accounts receivable, payment of bills, etc. An accounting firm will review the financial reports prepared by a company’s bookkeeper.
- A very small company might use the services of a bookkeeping firm (like a CPA firm) that employees bookkeepers. The CPA firm will review the financial reports prepared by the bookkeepers they hire or have on staff.
- A bookkeeper can also be an individual that offers bookkeeping services directly to clients through their own bookkeeping business.
- Most professional bookkeepers (like myself) have attended at least 2 years of college and hold an Associates Degree in Accounting, or have successfully passed a certification program and have earned the designation of Professional Bookkeeper
Bookkeepers typically do not have a four-year accounting degree, some will have a 2-year degree (Associates Degree) with a lot of real world experience.
A bookkeeper is expected to be:
- comfortable actually using accounting software (QuickBooks desktop, QuickBooks Online, Wave Accounting, etc.) to enter the day-to-day transactions of a business
- accurate, efficient, and knowledgeable about debits and credits, the chart of accounts, accounts payable procedures, sales and accounts receivable, payroll, and more
- familiar with how to setup a bookkeeping system from scratch for a business
- able to teach business owners how to use the system and properly enter the day to day transactions.
Most people think that they need to hire a CPA to help them set up the bookkeeping system for their business. In reality working with a really good bookkeeper is the best place to start.
I hope you’ve found this article interesting.
