Hello and welcome to our guide on two very popular finance professional credentials: CPA vs tax preparer.
The article will prioritize the licensed Tax Preparer authorized by the Internal Revenue Service (IRS) and indicate which is being referred to in a particular section.
It is important to remember that all CPAs are Tax Preparers, but not all Tax Preparers are CPAs.
When dealing with taxes, it is essential to be a trusted professional that abides by national standards – your license can help you secure more work and become a trusted partner for individuals and organizations.
In this article, we will take an in-depth look at what to consider when choosing between the two career options namely:
In this article, it is acknowledged that there are two types of Tax Preparers:
- Those who are licensed and took the SEE, whether as an enrolled agent or a tax attorney, and
- Those who are non-licensed, such as Tax Accountants and participants in the Annual Filing Season Program (AFSP)
After reading through this guide, you will have enough information to assess where you can take your career!
Similarities Between a CPA and a Tax Preparer
A CPA and a Tax Preparer have similar roles, especially with the knowledge of the broader public.
However, you will soon realize that they fulfill very different obligations.
First, let’s go through what makes these two titles comparable to each other.
Career Path
Essentially, Certified Public Accountants (CPAs) and Tax Preparers come from similar backgrounds and knowledge bases.
Both titles are well-equipped with basic knowledge about the world of finance and specialized knowledge of tax codes.
Their path splits when they decide to go for a more professional license to earn the recognition of their skills and pursue more prestigious employment opportunities.
Knowledge in Tax
Both CPAs and Tax Preparers are tax professionals with a similar competency in that they can both fulfill the task of preparing and filing tax returns.
To complete this task, they both investigate the client’s financial statements and help them prepare their income tax returns.
Since CPAs are also considered tax preparers, as the title suggests, they are highly knowledgeable in local, state, and federal tax laws.
CPAs have a more comprehensive range of knowledge that can be helpful when offering their accounting services.
License Maintenance
Both a CPA and a licensed Tax Preparer need to secure continuing education requirements and renewals regularly.
CPAs are required to complete their Continuing Professional Education (CPE) courses, the numbers of hours of which are determined by the state that the CPA is licensed.
These maintenance hours can range anywhere from 30 hours to 80 hours.
CPA licenses are also valid for two-year periods and must be renewed when they expire.
Licensed Tax Preparers are similarly required to complete 72 hours of education every three years.
Specifically, they are required to comply with 16 hours per year, 2 hours of which are dedicated to studying ethics.
The education partner for the continuing education units must be accredited by the IRS.
The enrolled agent license expires within a three-year period, as well.
Differences Between a CPA and a Tax Preparer
The branching path between a CPA and a Tax Preparer is simply the decision to take the rigorous CPA license application.
Educational Requirements
There are no educational requirements to take the IRS Special Enrollment Examination (SEE) and become a licensed Tax Preparer.
This makes the role of tax preparation pretty much a free-for-all option to take if one has the necessary skills and is interested in a career in accounting.
Just to be eligible to apply for the CPA license process, one of the requirements is to have a finance or accounting-related bachelor’s degree with 150 hours of education hours – only upon passing these requirements will you be allowed to take the four-part CPA exam.
Not only do you have to abide by the 150 hours, but you also need to have a certain number of hours in accounting, business, and business law-related courses.
It is definitely faster to dive into becoming a tax preparer; however, the path to a CPA also equips tax professionals with the necessary knowledge and experience to take on clients confidently.
Experience Requirements
There are no experience requirements needed to become a tax preparer – anyone who can reliably handle tax forms and has knowledge of tax laws can be a fit for the job.
However, in order to be eligible for a CPA, you need at least one year of work experience in a general accounting role, where you were supervised by an active CPA licensed professional.
Licensing Authority
Depending on the state, the unlicensed Tax Preparer can proceed with employment despite not being certified by a licensing authority.
A licensed Tax Preparer is authorized by the Internal Revenue Service (IRS).
However, both types of tax preparers are required to have an active Preparer Tax Identification Number (PTIN) with the IRS.
There is also the matter of the IRS Annual Filing Season Program, where unlicensed tax preparers can receive a Record of Completion that allows them to differentiate themselves from other unlicensed tax preparers and secure more reliable clients.
CPAs exams are developed and managed by the American Institute of Certified Public Accountants (AICPA).
CPAs are licensed by the state boards included in the National Association of State Boards of Accountancy (NASBA) of their respective states of practice.
Representation Rights
In order to represent clients on a variety of tax-related matters (like audits, payments, collections, and appeals), the tax professional must secure representation rights.
Licensed professionals like CPAs, enrolled agents, and tax attorneys already have unlimited representation rights thanks to their credentials.
However, regular PTIN holders and AFSP participants only have limited representation rights and can only represent their clients before revenue agents, customer service agents, and other IRS employees.
Of course, tax preparers typically take on clients who are not likely to undergo a tax audit by the IRS and thus do not need to be represented.
Thus, limited representation rights typically do not pose a problem.
Roles and Responsibilities
Tax preparers are pretty much limited to basic tasks: compiling and reviewing financial statements and preparing and filing the client’s taxes.
On the other hand, a CPA can have a multitude of roles and responsibilities: aside from preparing taxes, they can also be hired to perform financial planning services, advise clients on their tax situation and tax planning, and help clients during their IRS audits.
CPAs can also have their own areas of expertise, which is attractive to certain types of clients.
These specialties can range from financial forensics to management accounting.
CPAs can be employed in a wide variety of roles and fields, including:
- External or internal auditing
- Valuation
- Public accounting
- Tax accounting
- Non-profit accounting
- Forensic accounting
- Financial planning
- Estate planning
- Consulting
- Controller
CPAs have many opportunities to drive their careers in a specialized direction.
Reputation
CPAs are highly respected members not only in the world of finance and accounting but also in society.
This is because many people understand the rigorous processes professionals have undergone to become licensed CPAs.
Many people understand that CPAs are highly skilled professionals who have a good education and significant experience.
Not only that, but CPAs also abide by a strict code of ethics, and they are expected to act in the best interests of the client and the state – should they be caught in malpractice, their license will be revoked.
While Tax Preparers are respected professionals, they do not command the same authority and recognition that CPAs have.
Tax preparers also operate with less regulation, and thus the code of ethics and morals is not as strongly advocated in the field.
It should be mentioned that the job of Tax Preparers are started to be infringed by the existence of tax software and the E-file program with the IRS that is gaining popularity.
While there are also some individuals and entrepreneurs who are comfortable with filing taxes on their own, there are still others who will depend on a tax preparer to complete their tax requirements for them.
It’s not likely that tax preparers will have their job threatened soon because they are still a necessary part of filing taxes correctly for non-professionals – however, the possibility should be considered.
Salary Expectations
The earning potential of CPAs goes above and beyond what regular tax preparers are able to charge in their day-to-day jobs.
For one, CPAs usually find employment at big accounting and management consulting firms.
CPAs are likely to work with wealthy individuals and business owners who have complicated tax cases.
CPAs are likely to charge higher fees when representing and advising their clients.
Tax preparers are hired by individuals who have less complicated tax matters and don’t need the comprehensive education and experience of a CPA.
They usually work with individuals and small business owners who would be simple taxpayers and do not want to rely on tax software to do their job.
Tax preparers are the choice of those who would like to save a bit more money on accounting services and are hired at the right time during tax years.
According to the Bureau of Labor Statistics 2020 survey, a tax preparer salary can vary according to industry:
- Accounting, Tax Preparation, Bookkeeping, and Payroll: $ 52,240
- Management, Scientific, and Technical Consulting Firms: $56,320
- Management of Companies and Enterprises: $64,200
- Employment Services: $62,370
This sums up to an average salary of about $58,782.
Meanwhile, according to the employment platform, Indeed, a CPA in the United States is reported to be earning $81,575 as of January 2022.
Clearly, there is an advantage to becoming a CPA in terms of monetary gain – CPAs also have the benefit of offering their tax service year-round.
In contrast, some tax return preparers are only active during the time of the tax season.
Conclusion
If you are a tax professional contemplating the next steps of your career, you are probably deciding between becoming an experienced CPA or remaining a tax preparer.
If you would like to have more options and opportunities in your finance career, obtaining a CPA license is a great step.
Also, if maximizing your earning potential and employment stability is of great importance to you, choosing to become a CPA is an obvious choice.
However, if you are comfortable with earnings and seasonal employment as a Tax Preparer, then it is also a good profession to pursue.
While it may seem like CPAs are more desirable, both designations have their role to play in the world of finance and accounting.
Which path you will choose really depends on where you would like to take your financial career and what kind of tasks you are satisfied with.
