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Who Does Your Taxes? |
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December 2007
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Who do you trust to do your tax return? You may think it doesn't
matter, but your decision really could come back to bite you. Did you
know that someone can do your tax return completely wrong, but the
person ultimately responsible is you? Even though you pay someone to
prepare your taxes, if errors are made, the IRS expects you to have
checked what the preparer did and will hold you responsible!!
You hear so many terms for accountants - Certified Public Accountant
(CPA), Enrolled Agent (EA), book keeper, and, of course, accountant.
What do the terms all mean and how can the differences affect you? I'll
clarify so that you can be more aware of who you are trusting in the
upcoming tax season.
A Certified Public Accountant, or CPA, is someone with a college degree
geared toward taxes and many other aspects of accounting. After
receiving a degree, and in many cases a master’s degree, candidates
take an exam called (what else?) the CPA Exam. This is a grueling test
of four parts that cover not only taxes, but law, auditing, and other
detailed areas of financial accounting. It is a very difficult test
(that costs about $200 per part to take) and the majority of people
takes the exam several times before passing all four parts of it. If
you wanted to become a CPA, after obtaining the degree and passing the
test, you would have to work in the accounting industry, either public
or private, before becoming certified.
The individual states regulate and govern CPAs, and each state has
different rules in order to obtain a license to practice as a CPA. For
example, in the state of Georgia, you have to work in either private
industry under a CPA for 5 years (including 10,000 hours) or work under
a CPA in a public accounting firm for 2 years (including 4,000 hours).
You also have to document on your CPA application the type of work
experience you have obtained. Then, the state licensing board gets to
decide if your experience is in enough areas of accounting to grant you
the license. It doesn’t stop there. After you receive your license, you
are required to keep learning by taking continuing education courses.
In Georgia, you are required to take eighty hours of classes every two
years and you have to prove that you have taken these courses or the
state will not renew your license to practice. The courses cost about
$200 per eight hours. If you think
hiring a CPA is expensive, remember the old rule of thumb: You get
what you pay for.
Now on to an Enrolled Agent, or EA: An EA is a person designated by the
IRS, not the state. The right to practice comes from the Federal
government, specifically the Department of Treasury (IRS). In order to
become an EA, you do not have any educational requirements not even a
high school diploma! All you have to do is either pass a test
administered by the IRS or work for the IRS in an area of tax/auditing
for five years. I have heard it is a difficult test but, instead of
focusing on all areas of accounting, it concentrates on the tax code.
An EA is required to have continuing education just like a CPA, but is
only 72 hours every 3 years.
I truly do not want hate mail from Enrolled Agents, and am sure there
are EAs with as much as or more knowledge than CPAs; but as you can
see, there is a big difference between a CPA and an EA. Also, I have to
emphasize that since EAs have their designation from the IRS, it may
not be as much of advantage having them do your taxes. EAs who have
worked for the IRS may take a more conservative stance on your
situation and may not be as aggressive in newer areas such as gambling
and gaming.
People who call themselves tax preparers, bookkeepers, and/or
accountants may not be formally educated. If they did go to college,
they did not finish the path of formal training, such as having to pass
a test of knowledge. They may have taken some tax courses only in a
specific area, such as individual income taxes. Accountants or
bookkeepers are not allowed to defend you against the IRS. They cannot
obtain a Power of Attorney to represent you. They have to fill out a
Tax Authorization Form, which only allows them to inspect and/or
receive confidential information on your behalf.
Lastly, be careful of the guys in costume waving on the street corner
during tax season. You know they promise fast refunds and do a “while
you wait” tax return. These are the dangerous ones and the person you
trust to prepare your return correctly could be a bored housewife who
took a twelve-week course and is now feeling qualifi ed to do your
return! Try to find that person in three years if you get a notice from
the IRS that your tax return is wrong.
Okay, so now I have made EAs, accountants/bookkeepers, and a couple of
housewives mad at me. Because I am obviously a bit prejudiced toward
CPAs, I have to point out that it all boils down to hiring the person
with whom you feel most comfortable. It’s best to find someone who is
familiar with your type of tax situation, as he or she will know the
special ins and outs for your circumstances. Make sure your taxes are
filed and enjoy the rest of the year!
Ann-Margaret Johnston is a practicing CPA in Cumming, Georgia, north of Atlanta. She is the author of the recently published book titled How to Turn Your Poker Playing into a Business. Her website is www. pokerdeductions.com, where you can find answers to commonly asked poker tax questions.
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