All businesses, regardless of their sizes, require the services of a tax and financial advisor. Nevertheless, your business needs the services of a CPA (Certified Public Accountant) and not simply an accountant.
Distinguishing Between CPAs and Accountants
The term accountant’ generally refers to tax and finance professionals who abide by specified rules and regulations such as Generally Accepted Accounting Principles(or GAAP).These are rules and standards that are established by the Financial Accounting Standards Board ( or FASB).
CPAs, on the other hand, are accountants that have been certified after passing a licensing examination in a particular state. In essence, every CPA is an accountant, but not every accountant is a CPA.
A lot of small businesses employ the services of an accountant and there are numerous capable accountants offering services to small firms. An accountant might satisfy some of the accounting needs of a very small business. However, there are particular circumstances when it is advantageous to use a CPA.
Benefits of Using a CPA in Your Business
Although you may be operating a single entrepreneurship or a very small business, you might require the use of a CPA for a number of reasons, such as:
A CPA is licensed, unlike an accountant
CPAs are licensed by the respective states they operate in, and they must stay abreast of the tax laws –or lose their licenses. Accountants, on the other hand, do not have any license. Sitting for the CPA exam is a demanding process that takes a number of days and covers many aspects of tax and finance, among other things.
Once they are licensed, CPAs are supposed to conform to continuous educational requirements in order to keep their licenses. Accountants do not have to comply with this requirement. To learn more about the standards followed by CPAs, take a look at the AICPA (American Institute of CPAs).
A CPA is more conversant with tax laws
Even though not all CPAs focus on small business taxes, the majority of CPAs are more conversant with tax laws when compared to accountants. Understanding the tax code is a major component of the CPA exam and a lot of CPAs enroll in tax courses each year so as to keep pace with the tax code. Whereas an accountant might also have the capacity to file and sign tax returns, being designated as an accountant does not offer the assurance of certification. In addition, it does enable the account to represent clients before the IRS, even though they have signed their returns.
Accountants are categorized as unenrolled tax preparers
The IRS makes it mandatory for tax preparers to hold preparer tax IDs and it makes a distinction between those who are enrolled agents, attorneys and CPAs and the other preparers called unenrolled preparers. Accountants that are not CPAs are categorized as unenrolled preparers. The capacity of unenrolled preparers to represent clients in tax issues before the Internal Revenue Service (IRS) is extremely limited.
Get more details regarding tax return qualifications and credentials from the IRS.
A CPA will perform an in-depth financial analysis
A bookkeeper does routine tasks of entering records (for instance inputting details of the income and expenses of a business into a financial program), while an accountant evaluates this input and uses the information to prepare and analyze a business’s financial reports(P&L and balance sheet).
A CPA performs a more detailed and comprehensive analysis and also provides advice pertaining to financial and tax issues. While being called a CPA does not automatically indicate they will provide the best advice, they are more prepared to risk their licenses by proffering financial and tax advice.
CPAs can represent you during a tax audit
Perhaps the best reason to engage the services of CPAs is that unlike accountants, they are permitted to represent clients before the IRS when there is an audit. As mentioned above, an accountant who is not a CPA may only represent a client in a very restricted manner (an enrolled agent is eligible to represent a client with the IRS). In case you are paying a professional to file your returns, ensure they are fully authorized to represent you during an audit and act for you when you execute claims.
To put it in another way, an accountant performs routine work and they can file your tax returns whereas the CPA is able to do an analysis of the work, act on your behalf at a tax audit and assist you when making crucial tax and business decisions. Of course, a CPA is more expensive, but you will get value for your money.
Collaborating with CPAs
Get a CPA firm that comprises of a bookkeeper and an accountant. Then you can segregate between the everyday tasks and the financial and task analysis undertaken by the CPA. Alternatively, you can engage a bookkeeper to handle the periodic reports in the course of the year. You can then consult your CPA from time to time so they can assist you with the annual business tax returns. You may also request the CPA to check and sign the tax return that the accountant prepared under the supervision of the CPA.