Tax Office vs. Accounting Firm: The Basic Differences
Tax offices are not always accounting firms, and accounting firms are not always tax offices. And then even amongst tax offices one is not always the same as the other, and likewise with accounting firms.
Within the world of taxes, some offices focus on individual, business, or maybe estate/trust or non-profit taxes. Some are full-service tax firms servicing any type of tax return, fully experienced and licensed to handle all of them. Accounting firms similarly may specialize in a specific area of accounting, such as auditing or certified financials, or they may focus more on small business bookkeeping.
At the core of their differences, however, is simple that a tax office is where you generally go for tax preparation, tax planning, and audit representation. An accounting firm is where you go for financial statements, bookkeeping, payroll, budgeting, or internal auditing.
What Licenses Should a Tax Office or Accounting Firm Hold?
There are three licenses relevant to the tax and accounting world: enrolled agent, certified public accountant, tax attorney. Of these three, one is not better than the other, several areas of expertise cross over between them, and they each have one distinct difference.
Enrolled Agents (EAs) have a special focus on taxation and tax representation. They can prepare any type of tax return, assist with tax planning, and represent you in any IRS matter. They are the cornerstone of any prominent tax office, and the only license that requires continuing education on taxation. The EA license lacks only the ability to certify audited or reviewed financial statements but can provide all other tax and accounting services. Partner Christopher Olson is our in-house EA.
Certified Public Accountants
Certified Public Accountants (CPAs) can be experts in taxation, but they're license's focus is strictly accounting. They can prepare reviewed and audited financials and are generally the authority for all things accounting. While many CPAs are well versed in taxes as well, their license does not require continuing education on taxation and the majority of CPA's do not serve in a tax office. Partner Ken Germany is our in-house CPA.
Tax Attorneys usually don't deal with accounting at all and, while they can prepare taxes, don't typically provide the standard services of a tax office. They are the only one, however, they can fully represent you in the most serious of legal issues with the IRS.
Beware the Unlicensed Tax Preparer
To prepare individual taxes, you don't have to be an EA, CPA, or tax attorney. The IRS issues preparer tax identification numbers (PTINs) to any individual that can pass a basic background check. PTINs require no testing, no demonstration of competency, yet it gives the holder the authority to prepare individual's tax returns. These individuals are not allowed to prepare any form other than 1040 (individual taxes), and they cannot represent you before the IRS.
EAs, CPAs, and tax attorneys can all prepare business and individual taxes. There are no limitations to their authorities in tax preparation, planning, and representation.
While many unlicensed preparers are knowledgeable and experienced, many are not. The trouble with the lack of licensing is that you have no way of knowing their level of competency since it has never been officially tested.
Tax offices like H&R Block and Jackson Hewitt overwhelmingly employ unlicensed preparers. They provide in-house training and testing and use excellent software that can help catch potential mistakes. This makes for excellent 'data entry' preparers, which are individuals trained to know simply where to put your numbers on your tax return. It does not necessarily produce individuals who understand taxes and who can advise you properly.
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Our firm has the best of both: we are a full-service tax office and a full-service accounting firm, with in-house experts holding the EA and CPA license.