A tax advisor, also known as an enrolled tax agent or certified public accountant, is an accounting professional who specializes in the complex U.S. tax code, and who uses that knowledge to help taxpayers minimize their tax burden to Uncle Sam.
There are differences between the various classes of tax advisors, although each tax professional can help consumers make sense of their taxes.
- Enrolled agents: Specially trained enrolled tax agents must pass a rigorous test and meet annual industry regulatory requirements to meet and sustain their professional credentials. Enrolled agents are licensed by the federal government, and are fully approved to represent clients before the I.R.S. They also provide general consumer and business tax services like preparing income taxes and offering specialized tax planning advice.
- Certified public accounts (CPA): A certified public accountant shares many of the same attributes as an enrolled agent, but with a key distinction. While enrolled agents are licensed by the federal government, a CPA is licensed by the state where they set up shop, and must complete 150 hours of undergraduate and/or graduate school study and clear a CPA test given by the American Institute of CPA’s.
Professionally credentialed tax advisors can work in a variety of business models. Some run their own offices, some work for large corporations and tax-preparation chains, and some branch out to become certified financial planners. Most tax advisors who work with the general public charge by completed tax return, or on a service-by-service basis (like after handling an estate case or helping a customer start a small business.)
How to Find a Tax Advisor
No matter which type of tax advisor you choose, finding one isn’t difficult. You can either opt for word-of-mouth (asking co-workers, neighbors, family and friends for recommendations) or through industry trade groups.
- To search for an enrolled agent, head straight to the National Association of Enrolled Agents.
- To search for a CPA, head straight to the Boards of Accountancy’s CPAVerify online database.
- To search for a certified financial planner who is a credentialed CPA, head straight to the AICPA’s “Credential Directory” on the web.
Why You Need a Tax Advisor
A good, credentialed tax advisor can save you plenty of cash that would otherwise go into Uncle Sam’s pockets.
There’s a good reason for that sentiment – tax advisors possess the proficiency to understand the massive, complicated and often confusing U.S. tax code.
The actual size of the U.S. tax code is 2,600 pages long, although accompanying explanations and all past tax statutes push that number up to 70,000 pages. Buried in those pages are both trap doors and tax breaks that average Americans likely wouldn’t recognize, but a professional tax advisor would.
Aside from actual tax returns, a tax advisor can also steer individuals and businesses to tax-advantaged money moves in key areas like retirement, estate planning, investment management, and small business planning.
In addition, major life events, like a marriage, the birth of a child, or buying a home can also be scenarios where consumers could leave money on the table if they don’t consult with a professional tax advisor.
How to Get the Most Out of Your Tax Advisor
How do you choose the best professional tax advisor for you?
Start with your own unique goals and needs. For example, if your tax needs are fairly basic (i.e., you generally only need help with your tax return preparation), any tax advisor will suffice.
If your needs are more complicated – you’re starting a small business, you’re behind on your taxes to the I.R.S., or you’re about to retire, for example – you likely would benefit from a seasoned tax advisor who’s been around the block and knows how to expertly handle your tax situation.
That said, there are a few unifying factors that go into your tax advisor selection process that fit no matter what tax advisor you’re considering:
Make sure to vet your tax advisor
Unfortunately, there’s been an uptick in shady, fly-by-night tax preparers in recent years. So, job one is to thoroughly research a tax advisor. Ask for professional credentials and references – any tax advisor who can’t deliver on either front should be dropped from your list. Also, check your local Better Business Bureau for any record of complaints against a specific tax advisor.
Make experience a priority
While there are plenty of smart, newly minted credentialed tax advisors across the U.S., experience should be emphasized in your search. Having a tax advisor who has gone toe-to-toe with the I.R.S., or who has specific expertise in your area of tax need, is a huge benefit. While there is no hard-and-fast number when it comes to years of experience, your vetting process should answer the question of whether your candidate has the seasoned experience you need to handle your tax situation.
Look into two-in-one advisors
Again, choosing the right individual tax specialist is the name of the game when looking for tax help. But choosing a tax advisor who is also a certified financial planner can give you a more balanced approach to how taxes fit into your overall personal financial situation. Your investments, retirement savings, home mortgage costs, college savings (among other key financial household issues) come into play, tax-wise, and a good, well-rounded CPA/CFP could prove invaluable to you over the years.
Make sure you’re clear on fee structure
Depending on your tax needs, a tax advisor will likely charge you on a sliding scale – the more help you need, the more you’ll pay. Typically, tax advisors charge a lump sum for services rendered. But some tax professionals may also charge by the hour, by the tax return completed, or even by a percentage of your assets in play (like a financial planner typically charges.) Make sure to ask any tax advisor about fees before moving forward.
Make no mistake, tax advisors are not only for the wealthy. If you have a home, retirement savings, a family, and/or you file income taxes, you’ll likely benefit from the help of a professional tax advisor.
