33 million small businesses in the US comprise over 99.9% of all businesses across the country, most striving to become tax compliant despite being overwhelmed and deemed too complex to be studied on their own. (1)
This is the reason why most freelancers, startups, and small business owners resort to passing their tax burden to two of the most sought-after experts in the field, the CPAs and tax attorneys.
Today, there are over 119,000 businesses offering tax services (2), while 201,000 are CPAs and 27,000 attorneys (3) who are tax preparers and planners. But how will you know which one to run to?
In this article, we will delve into the realm of tax professionals, comparing the roles, expertise, and benefits of having tax attorneys and CPAs.
What are tax attorneys?
Tax attorneys are legal professionals who specialize in legal aspects of taxation and have knowledge and skills regarding litigation, negotiation, and other mediations regarding US tax laws.
Tax attorneys also help businesses comply with Internal Revenue Service (IRS) rules, and represent clients during a tax defense case, dispute, and other legal proceedings.
To become a tax attorney, an individual should have a 4-year bachelor’s degree, pass the law school admission test (LSAT), and earn a Juris Doctor degree that takes about 3 years to complete.
Tax lawyers then have to pass their state bar exam and most tax attorneys continue further education as a requirement to keep their license active to practice law. Some even obtain advanced graduate degrees specializing in tax, such as a Master of Laws in Taxation.
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Areas of Expertise
Tax attorneys specialize in providing legal counsel and because of this, you can enjoy an attorney-client privilege. They also have extensive knowledge when it comes to tax liabilities, tax fraud, tax penalties, and other complicated tax situations.
Since they are fully licensed, they appear in court and act on behalf of clients and their businesses based on legal precedents, tax documents, and legal advice in writing.
Assisting clients in adhering to American and International tax laws and tax code
Handling tax implications involving debt collection notices, unpaid taxes, and other tax issues
Preventing and resolving client involvement in a tax controversy or tax dispute
Represent client or their business in a tax court or US Court of Law
Represent and defend the taxpayer before the IRS
Coordinating with a revenue officer during tax disputes
What are certified public accountants (CPAs)?
A certified public accountant (CPA) is one of the types of accounting professionals who help you with the financial aspects of your business and create strategies for informed financial decisions.
A CPA is often recognized in the accounting field as an expert in financial planning and management, taxation, and providing guidance to business owners on how to keep their finances healthy.
Being a CPA requires an individual to be a graduate of a bachelor’s degree preferably in finance, accounting, or business administration. Some have gained experiences post-graduating while others pursue master’s degrees in the same field.
They then undergo a four-part examination to pass the CPA examination conducted by the American Institute of Certified Public Accountants (AICPA) together with the National Association of State Boards of Accountancy (NASBA).
Like tax attorneys, they are also required to take continued education and abide by AICPA rules in order to keep their licenses. CPAs must work for 1,800 hours under a licensed CPA and render 120 learning hours every three years.
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Area of Expertise
Because they are sought after in their profession not only as respected financial advisors but also as consultants when it comes to several business aspects, CPAs can also advance in their career growth to become CFOs and auditors.
Most CPAs who specialize in tax help in business compliance with proper financial accounting, bookkeeping, auditing, and other essentials when it comes to tax preparation.
Updating tax documents, especially during tax season
Completing required tax payments in a timely manner to avoid tax penalties
Making and filing state and federal tax returns
Developing business financial and taxation strategies
Monitoring financial activities to prevent fraud
Providing assistance when undergoing an IRS audit
Key differences between CPA and tax attorney
While both CPAs and tax attorneys play important roles in the field of taxation, they possess distinct skill sets and offer profession-specialized services.
CPAs can offer different business financial, accounting, and taxation expertise. Because they have a strong foundation in accounting and financial analysis, the most common services that CPAs provide are the preparation and organization of a company’s financial documents.
They also audit and analyze what you currently have, examine your records, and provide assessment and financial advice to improve overall financial management accuracy and efficiency in complying with accounting standards.
Aside from this, a CPA can also offer tax planning services. They have in-depth knowledge when it comes to assisting clients in tax optimization and ensuring you do your part in conforming to tax regulations.
When all the essentials have been met, CPAs also offer business consulting services to make sure you maintain overall business wellness. They create financial forecasts and trends reports and appropriate business structures, and models. CPAs also help in identifying risks, budgets, and operational and profitability strategies.
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On the other hand, a tax attorney can provide legal expertise when handling concerns regarding taxation. Some of these services include handling tax controversies and litigation, and conducting legal research and analysis to stay updated with tax law changes.
This will help better represent clients in tax appeals and disputes with tax authorities, and provide legal defense or negotiate settlements on behalf of clients.
Tax attorneys can also work in specialized tax areas depending on their proficiency and experience. Some of the areas in tax law that require particular mastery are international and cross-border taxation, corporate tax, estate planning, and interpretation of specific tax codes.
When business transactions are involved, tax attorneys can also assist in large-scale decision-making of company stakeholders in mergers, acquisitions, and contract stipulations.
They ensure tax implications are taken into account and tax liabilities are minimized if not completely avoided.
Many tax attorneys help you resolve tax liability issues and tax law compliance and this is because of their strong analytical and reasoning skills. They also have extensive know-how in factual research, as well as written and oral communication skills to be able to handle each tax concern comprehensibly.
CPAs, on the other hand, have immersive knowledge of observing ethical standards especially in exercising their mathematical and accounting capabilities. They are highly equipped with business-oriented problem-solving skills, that help them identify solutions and strategies aligned with the company’s vision.
Both CPA and a tax attorney provide assistance in tax-related matters like creating an effective tax plan for your business. However, CPAs and tax attorneys handle tax-related matters from different perspectives.
CPAs are often oriented to work with the business’s finances to avoid tax issues. They prepare the right documents during tax audits and make sure you don’t overpay and sacrifice business profitability.
On the other hand, a tax attorney’s orientation is to help a client or its business resolve tax issues. They step in to protect your assets, help negotiate a settlement, and represent you when dealing with concerned tax agents and authorities.
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Importance of seeking help from tax experts
Opting not to avail of the services of a CPA or tax attorney, can be time-consuming, especially if you're not well-versed with tax laws and procedures. By hiring a tax expert, you can free up your time and focus on other important aspects of your personal or business activities.
Benefits of hiring a tax attorney
It is beneficial to hire a tax attorney during complex tax situations that require legal proficiency. When your business owes unpaid taxes for several years, is under investigation because of a tax case or suspected fraud, or when your holdings are in danger of being collected, this is when a tax attorney steps in.
There are also situations when you need an expert to speak officially on your behalf because it can be intimidating to face an IRS agent personally and they might think you have something to hide. Having a tax attorney can work to your advantage because they know the ins and outs of the law.
Benefits of getting a CPA
For handling business finances and maintaining your financial records, you can opt to hire a CPA. A certified accountant can help you with routine tax arrangements and compliance needs. They handle situations needing financial analysis and reporting so you can be assured that observing proper tax payments is part of your annual business plan.
It is also favorable for small businesses to avail of CPA services when they need ongoing tax advisory and consultation. Entrepreneurs may find it hard to take control of taxes for both personal assets and business expenses without mixing them up, and this is where CPAs step in to do the proper accounting, monitoring, and documentation.
Maintaining a good relationship with your tax attorney and CPA is crucial because both can provide valuable tax information. In some cases, they communicate with one another and collaborate effectively for your business. Joint expertise is essential to smooth-sailing tax planning and preparation.
Empower your tax journey by making the right choice
Taxation is a complex and ever-changing landscape that often leaves you feeling confused and uncertain but with the proper understanding of the differences between tax attorneys and CPAs, making informed decisions about tax-related matters can be easier.
Getting the correct tax professional brings valuable expertise, saves you time, minimizes errors, and provides peace of mind. Whether you're a new entrepreneur or a thriving business owner, seeking the assistance of a tax expert can greatly benefit you in navigating the complexities of taxation and ensuring that you meet your tax obligations efficiently and effectively.
The Hall Accounting Team navigates the complexities of accounting and taxation turning challenges into opportunities for your business's continued success. Schedule a call today to learn more about how our accounting services can benefit your business and help you thrive in the ever-changing landscape of taxation