Many businesses benefit from retaining a tax professional on a regular basis to offer advice and assistance. This can make a huge difference in the profits of business owners, since the tax professional can explain the full scope of their available deductions and help them avoid any pitfalls in reporting taxes. There are three main types of tax professionals: enrolled agents, certified public accountants, and tax attorneys. You should avoid any other person who says that they are an “expert” or tax preparer. They may not have any specialized license or training.
In addition to preparing tax forms and answering your questions about taxes, a tax professional can take the logistical burden of keeping tax-related records off your shoulders. If the IRS decides to audit you, or if you owe back taxes, the tax professional can counsel you on how to handle any interactions with the IRS. Some tax professionals can handle these interactions on your behalf if they are qualified. This can relieve stress, save time, and allow you to focus on your business goals.
Types of Tax Professionals
Certified public accountants (CPAs) are perhaps the most common type of tax adviser. They must meet licensing requirements in their state and follow state regulations. CPAs can prepare tax returns and assist businesses with complex accounting and tax needs. If you are running a sophisticated type of business, you may need to retain a CPA. Owners of small businesses may be able to save some costs by using a smaller CPA firm.
Tax attorneys tend to be more expensive than CPAs but may offer more comprehensive guidance. You may not need to resort to a tax attorney unless the IRS is actively pursuing you, or unless you are concerned about a tax issue that may affect the health of your business. If you are winding down your business or developing an estate plan, you may want to consult a tax attorney together with a business attorney or estate planning attorney. A tax attorney will have an LLM degree in tax law or a tax specialization certificate from their state bar.
At the other end of the spectrum are enrolled agents. These are professionals who are licensed by the IRS based on passing a certain test or working for the IRS for at least five years. They offer less comprehensive assistance than CPAs and tax attorneys, but they are much cheaper and may be adequate if your business has no special needs.
Finding a Tax Professional
You should make sure to hire a tax professional who is experienced in helping your type of business in your type of industry. Ideally, you should give yourself plenty of time to conduct a search before you actually need a tax professional’s services, unless an emergency arises. You may want to start your search in the second half of the calendar year, rather than waiting until the last few months before returns are due.
A good place to start can be asking for referrals from friends and colleagues, as well as exploring listings provided by bar associations and CPA organizations. You can also look at ads in industry publications and directories. None of these sources provides a guarantee of quality, though, so you should make sure to carefully interview each tax professional who interests you, asking detailed questions to evaluate whether they are the right fit. You will want to find a tax professional who will be available with the consistency that you need. You can ask them substantive questions about the law and IRS procedures to test the scope of their knowledge. If you want to hire a professional who can represent you before the IRS, you should ask this question at the outset of the process. It is important to find a professional with whom you feel comfortable.
Before you sign up for the services of a tax professional, you should clarify the details of the fee arrangement. You might be able to arrange a fixed fee for certain services, or you might need to pay an hourly fee. Sometimes a fee will be open to negotiation or a discount. Any arrangement should be put in writing.