The Dilemma: Do You Really Need a CPA for Your Taxes?

Owning a home, running a small business, managing investments, and/or having a spouse who works a W-2 job can make tax time feel overwhelming. With so many moving parts in your financial life, you acknowledge the need for professional assistance with your taxes, but do you really need to spend the money for professional help? It’s a valid concern, especially when you have so many options to choose from. To make the best decision for your unique situation, it’s crucial to understand the different types of tax professionals and what they bring to the table.

The Options: Choosing the Right Tax Preparer

Choosing a tax preparer should be about their education, experience, credentials, and ability to fit within your budget. Anyone can call themselves a tax preparer. Shockingly, no education or experience is required. In 2012, the IRS tried to institute a mandatory test and user fee, but in 2014 this was overturned by the courts. Therefore, the only way you can ensure that your tax preparer has any education or experience is to use an enrolled agent (EA), a certified public accountant (CPA), or an attorney. However, many taxpayers are unsure about the differences between an EA, CPA, and tax attorney when deciding who to hire.

What Sets Qualified Tax Professionals Apart?

Each of the three categories requires you to take an exam or have relevant experience, and each are also the only professionals who can represent you in front of the IRS. Here’s a breakdown:

1. EAs: EAs are tax experts who must have the required education and experience to be certified by the IRS. They have to pass a comprehensive exam covering all aspects of tax law and are approved to represent taxpayers in front of the IRS. They have to take 72 hours of continuing education every three years to keep their certification. Their expertise is narrow but deep, focusing solely on taxes.
2. CPAs: CPAs have a broad educational background, requiring years of strenuous schooling, rigorous testing, and exams, as well as more hours in required continuing education (typically 120 every three years, but this varies by state). However, their education covers a broad range of topics, not just taxes. It’s important to note that some CPAs have little to no experience with taxes.
3. Attorneys: Attorneys attain their credentials in a similar fashion to CPAs, and their education is also broad. If you have a serious tax matter, especially if you are facing criminal charges, a tax attorney can be invaluable.

How to Choose Between an EA, a CPA, and an Attorney

Each professional category has its strengths, and your choice depends on your specific needs. For example, when comparing an EA with five years of tax experience to a CPA with five years of tax experience, I would go with the CPA every time, especially if the CPA also has a Master of Science in taxation. The degree adds the study of tax law to their background, so the CPA is more likely to understand the complications of tax law. This would also be similar to a tax attorney.

A tax attorney can be the best choice if there is any question as to the truthfulness of your tax return. Conversations with tax attorneys are protected by client-attorney privilege, meaning your tax attorney cannot be forced to testify against you.

EAs with many years of experience can be a solid choice, especially if they have other education or experience and then obtained their EA certification later on. That shows a level of dedication to lifelong learning, and they are likely to bring a more well-rounded amount of experience to the table.

Depending on the level of professionalism you choose for your tax preparation, there is, obviously, a cost differential. To prepare your tax return, an EA may require a low fee. However, for a CPA to prepare that same return, it would cost you more, and even more still using a tax attorney.

The Cost Considerations: Balancing Quality and Budget

Actual estimates for your tax preparation also depend on the complexity of your return and where you live. The larger the firm, in general, the more expensive the fee. They typically have more resources (better tax preparation software, tax research subscriptions, and more-experienced staff).

While it’s tempting to cut corners and go with the cheapest option, it’s crucial to weigh the risk of receiving subpar service. Having prestigious letters after someone’s name doesn’t guarantee they can prepare a flawless tax return (and neither does having the “EA” or “CPA” designation, unfortunately).

What Are the Right Questions to Ask?

When interviewing tax preparers, it’s vital to ask the right questions to ensure that your taxes will be handled properly:

• Who will be preparing the return (e.g., a virtual tax preparer overseas, the professional themself)?
• What procedures do they have in place for quality control? As an example, in our firm each tax return is either prepared or reviewed by a CPA before it goes out the door.
• What is their policy for amending a return at no charge if they make an error?
• What is their policy around reimbursing for tax penalties if they make an error?
• Do they have a secure file upload method available?
• Do they offer e-filing?
• Will they offer to set up your taxes to autopay or direct deposit any taxes due, tax refunds, or estimated taxes?
• Do they own tax research software or are they relying solely on the internet?

What if Your Situation Doesn’t Require Professional Help?

While some individuals require assistance due to their complex tax situations, many people with straightforward tax situations, such as having a W-2 and a few 1099s, can easily self-prepare their taxes. By doing your own taxes, you save on professional fees and can use affordable or even free tax software for simple returns. This allows you to work at your own pace and schedule.

Self-preparing your taxes can also be a valuable learning experience, helping you understand your financial situation better and making you aware of potential deductions and credits. You also have full control over the information entered, reducing the risk of errors and ensuring your personal financial details remain confidential. This approach can make the tax preparation process more manageable and enjoyable.

Over 50% of the tax returns we pick up as new clients have errors (even if they were prepared professionally). That rate shoots higher for self-prepared returns (it is challenging to get Form 8606 to appear correctly in TurboTax!).

Conclusion: It’s About Your Peace of Mind

Ultimately, when deciding on whether to hire a tax professional (and which one to choose), the best choice is one who provides you with both the peace of mind and expertise you need to navigate the complexities of your financial situation. You want to know that your taxes are being handled by someone who understands the nuances of tax law and is fully capable of minimizing your liability while maximizing your tax benefits.

While the up-front cost of hiring a top-tier tax professional may be higher, it’s worth considering the potential long-term benefits of getting it right the first time. Whether you choose an EA, a CPA, or an attorney, ensure they are experienced and fit your specific needs. Taxes can be complicated. You don’t have to do it alone. If you need assistance with taxes as part of your overall financial planning, please reach out to our team.