If you had a heart condition, would you go to your primary care doctor or a cardiologist?
Easy question, huh?
They why when it comes to taxes, do most people say “I’ve got an accountant who handles that.”
What does your accountant do?
Are they a specialist? Or just a “primary care giver“?
For most people their accountant is a CPA. Want a surprise?
While a CPA is the highest designation you can receive in accounting, it may not be the best certification for tax issues.
First off, the CPA exam covers all aspects of accounting, taxes are only a small part of this exam. In addition, a CPA is never required to take another tax course for the rest of their lives. In fact, their Continuing Professional Education(CPE) requirements to maintain their CPA status can be on any accounting subject.
Secondly, if an accountant is learning about bookkeeping, records and auditing, how much time can they really spend on taxes?
This is much like a doctor: A cardiologist ONLY studies hearts.
A tax professional ONLY studies taxes.
With this in mind, the top professional designation for a tax preparer is the Enrolled Agent(EA). First off, the exam for enrolled agents is ONLY on taxes and it is 3 parts:
Secondly, an Enrolled Agent is required to take 72 hours of continuing education every 3 years to maintain their license and they can ONLY take tax related courses approved by the IRS.
Third, the other way to become an Enrolled Agent is to work for the IRS for 5 years, so as an EA, you have the knowledge of an IRS veteran.
Another accounting phenomenon is the bookkeeper with an associates’ degree who gets a Paid-Preparer Tax Identification Number(PTIN) and presents themselves as a “full service accountant“. Until 2010 anyone could get one simply by filing a form with the IRS. Thankfully, they have cracked down on this and now require any PTIN holders to either be enrolled(EA, CPA or several other licensed financial professionals such as Tax Attorneys or Actuaries) or pass a competency exam prior to receiving or renewing their PTIN.
This might be the type of accountant that is mentioned in the best-selling book “The Millionaire Fastlane: Crack The Code To Wealth and Live Rich For A Lifetime” by MJ Demarco. On page 286 he mentions:
“Don’t be an idiot like me. Still green, I remember my first accountant, found right out of the Yellow Pages – not from referral, but blind hope. It didn’t take long to see that she wasn’t concerned with tax planning. No questions about my business or my concerns, just zeal to complete the forms and get it done. Additionally, most of her clients were Slowlaners who dabbled with W-2s and 401ks rather than corporations. Great pick, MJ. I needed someone with a Fastlane business mindset and I committed to finding one. After interviewing and investigating a half-dozen accountants, I found one whose clients were primarily business owners.”
Based on our experiences, we’re guessing the first accountant was most likely either:
a) the book-keeper posing as a tax professional, who only knows how to balance books, thus the inability to properly interview a client.
b) a CPA who does taxes 3 months out of the year to earn extra money and is more concerned with records and auditing than caring about the most important aspects of working with a tax client- INTERVIEWING and CONSULTING.
A doctor finds his tax professional through referrals of fellow doctors. He hires someone whose clients are primarily doctors.
His tax professional advises him to file “Married Filing Separately” while his wife files “Single” so he can avoid burdening his wife with taxes on her salary (her salary is significantly lower than his) and his wife can qualify for low income tax credits.
Sadly, this particular doctor gets taken to the cleaners. Not only does the “professional” firm charge him a pretty penny (around $5k), but they make the rookie mistakes mentioned above.
Result: An audit – for both of them.
The correct solution to this really depends on a case by case analysis and for this one filing “Married Filing Separate” would work in his case, however, the wife should have filed the same and instead of trying to “cheat” to get the low income tax credits he would have had less exposure to audit.
Unfortunately, this doctor did not get the proper level of service until it was too late and it cost even more in audit representation service and the pain/headache of actually going through the audit. Needless to say the doctor did find a competent and trust-worthy service provider the next time around and avoided additional costs and pain.
The moral to the story:
A tax professional can save you. Big time!
Some personal info:
As a Tax Patriot, I am currently licensed with a PTIN and in the process of studying for the Enrolled Agent exam. In the mean-time I am working under the guidance of my father, our founder and lead Tax Patriot, a CPA/Enrolled Agent with over 30 years of experience.
UPDATE: I received my Enrolled Agent(EA) license in March 2014.
Our lead Tax Patriot has seen everyone from minimum wage employees to multi-millionaire business owners. Our specialty, or niche, is taxes. We have helped people from all walks of life. But we just focus on taxes.
This approach is different from many accountants, who work with specific “niches” or occupations/endeavors. Their philosophy is to provide the best service by being a one-stop shop for all accounting needs, but specializing in a certain demographic.
It is a viable approach.
But which is the better for getting your taxes done: Being a jack of all trades for one specific occupation or niche?
Or focusing just on taxes?
Contact us for a FREE consultation and find out for yourself.