What is an Enrolled Agent?
An Enrolled Agent is a dedicated tax professional who has taken a 3-part competency exam administered by the IRS as well as a fingerprint-enhanced background check for criminal and ethical behaviors. Designated by an "EA" after their name in the same manner as an "MBA" or "CPA," Enrolled Agents, like many other service professionals, are required by the IRS to take yearly continuing education in the field of tax law and ethics in order to retain their designation.
Why choose an Enrolled Agent?
An Enrolled Agent has made a commitment to excellence for their clients through education and training. EAs maintain and update their knowledge of evolving tax laws through yearly education, research and testing.
An Enrolled Agent has privileges to represent taxpayers in front of the IRS in ways that non-credentialled tax professionals can not. While all paid tax preparers are allowed to help taxpayers complete a tax return and work with taxpayers on returns the preparer completed, only Enrolled Agents, CPAs and Tax attorneys in good standing with the IRS can directly advocate for taxpayers in the event of an audit on ANY tax return. Meaning, if you need help with issues on a previous years' return, either track down your original preparer or retain the guidance of an EA, CPA or tax attorney.
Who should I choose: an EA, CPA, or Tax Attorney?
Deciding what type of tax professional you need is the first step to obtaining help.
Enrolled Agent (EA)
Because we specialize in taxes and are not busy with heavy duty accounting tasks, EAs sometimes are more familiar with the details of tax law than other, more highly-credentialled financial professionals. I have seen cases where CPAs have missed deductions or loss carryforwards that an EA would have been more sensitive to noticing. Remember, an EA's continuing education is highly focused on Tax Law Updates and Ethics, while a CPA has a much broader requirement of topics to be covered each year.
EAs are typically less costly than CPAs or Tax Attorneys, so it is often more economical to hire a tax specialist for handling tax matters. Most individual taxpayers would fare well with the guidance of an EA for their tax situation.
EAs can also be a good choice if you are starting a small business, particularly a service-related business. I have provided introductory guidance to savvy clients on how to set up business finances so that tax returns are easier to complete and comply with the IRS's requirements for recordkeeping. It is always easier to comply with recordkeeping requirements if you know beforehand how to manage expense receipts and estimated taxes. If you have a large amount of inventory/assets or a complex business structure, you may consider a CPA as a more robust option that includes sound accounting advice.
CPA
A CPA is a wonderful resource for starting a business and managing general accounting of your business, particularly if you plan to hire employees. CPA firms often have bookkeepers billed at lower rates and may even have an EA on staff to handle tax matters. CPAs can take a look at your business plan and get you started on the right foot with your accounting, recordkeeping and tax compliance responsibilities.
If you have a complex business structure, a CPA may be an excellent option, as they are apt to have more knowledge about accounting procedures that will help them understand your income and tax structure.
Remember that a CPA, to be profitable, will be looking for larger clients, and may or may not be able (or willing) to provide guidance to smaller clients.
Tax Attorney
We all hope to never get into a situation where a Tax Attorney is required. But if you have serious tax issues, you may benefit from retaining an attorney specializing in tax law to deal with the situation. Usually, tax attorneys take cases that are headed to Tax Court. Although a CPA or EA may help represent a taxpayer in Tax Court, a Tax Attorney will likely have more experience navigating the system and may make the process more streamlined for the taxpayer.
Non-Credentialled Tax Preparers
Some times, a non-credentialled tax preparer is sufficient for your needs. Simple tax return? Wages only? Maybe a bit of interest earned from a bank? This type or preparer is an option for you, as long as you do your homework.
1. Find your tax preparer through word-of-mouth, from a trusted source. Your source should use words like "honest," "reliable," "good listener," "thorough," and "legal." Not words like "guarantee," "under the table," or "fudge." If you think you qualify for a "loophole," your tax return is complicated enough to hire an EA or CPA to make sure you legally qualify for the loophole.
2. Do NOT pick a preparer based on promises/guarantees of a good refund -- not even the best preparer can predict how much you owe before they see your tax documents. I would not trust their ethics if they can guarantee a refund -- what illegal tricks might they be using?
3. Make sure you review and understand the return before it is filed. This is true for all tax professionals -- just because you paid someone to complete your return, doesn't let you off the hook for the taxes and penalties if it is done incorrectly.
4. NEVER, EVER, EVER hire a tax preparer who is unwilling to sign your tax return. If your preparer believes in their work, he or she should sign it and take responsibility. The IRS considers it a breach of ethics to get paid to prepare a return but not sign it. If you meet a tax professional who works like this, RUN AWAY! You don't want to be left with a letter from the IRS and no one to help you fix a problem. The IRS will not take pity on you for being taken advantage of.
Need more information?
Check out these links! Look up your tax professional to make sure they are legitimate and in compliance with IRS rules! This is the safest first step toward selecting a trustworthy tax professional.
IRS Advice on Choosing a Tax Professional
IRS Directory of Tax Professionals
A tax professional is an essential part of your wealth-planning team!