I think the accounting industry has failed the public.
A common joke within the accounting industry is that telling someone that you're an accountant is a great way to quickly end a conversation. It's true! Most people think of accountants as nerdy basement dwellers that come out into the sun once a year to help you file your taxes. While many of us are pale, the accounting profession is much more diverse than most people realize.
My point is that the accounting industry has done a bad job of educating people (especially business owners) about what it is that we do.
You see, not every accountant offers tax preparation. Not every accountant is a CPA. Most importantly, not every accountant is going to suit your needs!
So, what do accountants do? How can an accountant help me? Do I need an accountant? Let's talk about it.
Can all accountants help with my taxes?
It's fairly common to assume that all accountants offer tax preparation and planning. Most people think that the word "accountant" is the same as "CPA". The truth is, not every accountant is a tax accountant or CPA!
Unfortunately, not all accountants can help with your taxes. The IRS lists five different types of preparer and representation levels. Any professional with a Preparer Tax Identification Number (or PTIN) can help with tax filing, but not every professional can represent you before the IRS for audits, payments, and appeals.
- Enrolled Agents (Unlimited Representation Rights): The Enrolled Agent status is the highest credential that the IRS awards and includes unlimited practicing rights; they can represent all taxpayers for any issue to any office.
- Certified Public Accountants (Unlimited Representation Rights): CPAs are licensed by individual state boards of accountancy and have unlimited practicing rights; they can represent all taxpayers for any issue to any office.
- Attorneys (Unlimited Representation Rights): Attorneys are licensed by state courts and have passed a bar exam. Some attorneys choose to specialize in tax preparation and planning; they can represent all taxpayers for any issue to any office.
- PTIN Holders (Limited Representation Rights): These are tax preparers with active Preparer Tax Identification Numbers and no professional credentials. PTIN holders can prepare tax returns, but that's all. They cannot represent clients before the IRS.
- Annual Filing Season Program Participants (Limited Representation Rights): These are uncredentialed return preparers that are voluntarily participating in seasonal return filing programs. They cannot represent clients before the IRS.
Often, you'll hear people refer to their tax preparer as their CPA. CPA is simply an abbreviation for "Certified Public Accountant", which is a licensing designation provided by the Board of Accountancy in each state. To earn your CPA license, accountants need hundreds of semester hours of college coursework, experience in their field, and to pass an extremely rigorous set of exams. CPAs are licensed to provide accounting services to publicly traded companies, which is required according to the Sarbanes–Oxley Act of 2002. Many CPAs choose to work in external auditing for public companies, engage in government accounting, internal auditing, or even tax planning and preparation for the public.
Enrolled Agents, or EAs, are held to similar professional standards as CPAs but are only required to pass a three-part exam covering individual and business tax returns.
Why should I work with an accountant?
While taxes are a massive reason to hire an excellent tax professional, they're not the only reason why you'll want to work with an accountant, especially as a business owner.
1. You're growing your business
Every business faces its fair share of challenges. Whether you're just starting or have been in business for decades, you're likely facing some kind of problem in your business!
As your business grows and begins to scale up larger and larger, these problems become more and more evident over time. When it comes to financial-related issues, you need someone who can foresee the problems you'll encounter and proactively implement a fix! When it comes to financial issues, accountants are like architects building and implementing solutions that you may not even have realized was possible. From creating layers of approval for check requests to designing financial databases that track sales for your company, there are a lot of opportunities to create more efficiency in any business.
There's been a longstanding sentiment that accountants can fix issues you didn't even know you had with solutions you don't understand. If you can find an accountant that clearly explains and communicates the problem and solution in a way that you can understand, your business will be better for it.
2. You're looking for clarity
Financial information can often feel like a mystery. How do you read a statement of profit and loss? How do you interpret what's on a balance sheet? More importantly, what do those things mean for your business?
An excellent accountant or bookkeeper should not only be educating you on how to read your financial statements but also on what they mean for your business. Instead of simply delivering meaningless reports, you should be able to truly understand the impact your money is having on the business!
This is where some people fall into the trap of only working with a tax professional: they think, "my books are getting finished for tax season, I'm all set." In reality, if you're growing your business and are not receiving insights into your financial activity at least every quarter, if not every month, you're missing out on a lot of valuable insights. Many tax service providers are simply focused on the tax side of your business, and while this is important, it's not the full picture.
To receive the most financial insight into what's happening in your business, it's ideal to work with a more diversified accounting team:
- Your CPA, EA, or other tax professional to help you plan and file on time.
- A financial advisor to ensure that your money is working for you
- A business accountant or bookkeeper is focused on providing clarity and insights regarding the things that are happening in your business.
These are three independent service providers, but when they work and interact with you as a team, they're an unstoppable force for imbuing you as the business owner with confidence.
3. You want to be prepared
Excellent business accountants and bookkeepers help you prepare for the future in a way that is tangible and comprehensive. Instead of simply analyzing what happened in the past, a proactive accountant can help you look forward and make projections and predictions about what may happen in the future!
While they will help you prepare for tax time, accountants can also help you prepare for slower seasons in your business. They can help identify ways to weather the storms of recessions or put more of your money aside when everything is going well.
Accounting is not just about tax preparation. Instead, it's a wide approach to helping your business stay financially healthy, helping you as the business owner find confidence and clarity, and ultimately, incredible accountants are key components for any successful business.