Tax Preparer vs. CPA: What’s the Difference?

Updated 1/31/2024

 

With tax season underway in the United States, millions of businesses—and even more individuals—will need to file their taxes with the Internal Revenue Service (IRS).

While certified public accountants (CPAs) are well-known tax professionals, they’re not the only qualified individuals who can prepare and file tax returns for businesses and individuals.

Let’s discuss the difference between a general tax preparer and a CPA to help you decide what you need for your business.

What is a Tax Preparer?

A tax preparer is anyone who is authorized to prepare federal tax returns. For instance, a CPA is a type of tax preparer. However, not every tax preparer is a CPA.

Some job duties of a tax preparer are to:

• Help clients through the tax filing process
• Input client financial data into physical or electronic tax forms and software
• Organize clients tax documents
• Minimize a client’s tax burden by following state, local, and federal tax laws
• File tax returns with proper agencies

General tax preparation can be viewed as a seasonal job when tax preparers are hired to help assemble tax returns during tax season. However, in the business sector, tax preparers can work for a company year-round due to increased tax requirements for businesses.

What Can a Non-Certified Tax Preparer Do?

Someone with limited representation rights can file taxes for clients, but the IRS limits their representation. They can only represent clients whose returns they did and signed, but only in front of certain IRS staff, such as the Taxpayer Advocate Service.

General tax preparers usually help credentialed tax preparers, such as CPAs, gather paperwork or complete basic filings.

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Related: What is a Staff Accountant? Job Description, Salary, and More

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What is a CPA?

A CPA—certified public accountant—is a licensed accounting professional. To become a CPA, one must have enough accredited education (150 hours and a bachelor’s degree in accounting and/or other business-related subjects), pass a four-part exam, and gain enough experience in the accounting field. (Specific requirements can be found here.)

All that said, CPAs go through a lot of training and education to eventually prepare taxes. And while one of a CPA’s duties might be to handle a business’s tax dealings, they also often have other job responsibilities. These include:

• Recording and documenting financial information and documents (budgets, expenses, financial statements, etc.)
• Conducting forensic audits
• Making financial decisions and suggestions
• Forecasting financial outcomes
• Occasionally represent clients in dealings with state and federal tax agencies

That last bullet point is important. There are tax preparers who are certified and have “unlimited representation rights,” according to the IRS, and there are those who have “limited representation rights.” CPAs are professionals who have unlimited representation rights.

Other Types of Certified Tax Preparers

There are two other types of certified tax preparers with unlimited representation rights in the eyes of the IRS. Those are:

• Tax attorneys: These professionals represent and advise clients in tax dealings. While they usually don’t handle the physical task of filling in tax forms, tax attorneys provide opinions on tax outcomes from certain dealings, interpret tax law, litigate any tax disputes, and more. They are licensed by a state bar and specialize in tax specifically.
• Enrolled agents (EAs): An enrolled agent is authorized to file tax returns on behalf of businesses and individuals after earning a certification through the IRS. To earn the status of an EA, one has to “demonstrate proficiency in federal tax planning, individual and business tax return preparation, and representation” via a three-part test called the Special Enrollment Examination. Former IRS agents often become EAs.

Like a CPA, these positions may often have general non-certified tax preparers working under them to help prepare tax returns properly.

General Tax Preparer vs. CPA?

When deciding to hire a tax preparer vs. a CPA, it’s important to, first, figure out what your business needs. Is it seasonal support, or do you need someone to overhaul your tax dealings? Are you a small business that needs to fill gaps with a skilled accountant? Or are you looking to grow a team of tax preparers?

Once you understand who you need to hire, let us know your needs below. We can help fill either of these positions year-round.