Navigating taxes and other financial issues as an entrepreneur can be complicated, which is why many small business owners enlist the help of a professional. Tax attorneys and Certified Public Accountants (CPAs) are tax experts that can help you figure out tax issues and make sound financial decisions, but what exactly are they and in what circumstances should you hire them?
This article will explain the differences between CPAs and tax attorneys and the situations that each is best suited for so that you can make an informed decision when hiring a professional to help with your tax issues.
What Is a CPA?
A CPA is an individual who has passed the American Institute of Certified Public Accountants’ (AICPA) Uniform CPA Examination and met their state’s CPA education and experience licensing requirements. Most states require individuals to have a bachelor’s degree and two years of public accounting experience before becoming a CPA.
A CPA can help you reduce the taxes you have to pay while keeping you compliant with tax laws. A CPA can also analyze your company’s financial history and provide financial advice to help you make beneficial business decisions.
Accountants are skilled at a wide range of tasks, including:
- Accounting: preparing tax returns and managing financial records
- New business planning: advising on choosing a business structure that suits your unique needs
- Bookkeeping: recording purchases, sales, and payments
- Auditing: taking a look at your company’s operations to assess risk and determine financial decisions
- Providing financial advice: explaining how to manage your income, taxes, and investments to make your money work for you in a legally compliant way
- Preparing and filing tax returns: going over your financial records to accurately complete and file tax returns and other financial documents
- Paying taxes: ensuring that the correct amount is paid on time to avoid penalties and interest
When Should You Hire a CPA?
You should hire a CPA whenever you need financial advice or help filing your taxes. A CPA can help you file your taxes, choose the right business structure to get the most tax savings, and make financial decisions to help increase your wealth. Some of the tasks a CPA can handle include:
- Formulating tax plans
- Preparing financial documents for potential investors
- Preparing and filing your taxes
- Setting up and choosing a business structure for a new business
- Providing financial advice
- Fixing incorrect tax returns
- Setting up payment plans with the Internal Revenue Service (IRS) for underpaid taxes
- Advising on general tax situations that fall under clearly established tax law
- Determining how much you owe in taxes
- Applying for a small business loan
- Handling payroll
What Is a Tax Attorney?
A tax attorney is a lawyer who has passed the state bar exam and understands the intricacies of tax legislation. A tax attorney can help you navigate confusing tax laws, look at your tax plans to ensure they are legally compliant, and defend you in court for tax-related lawsuits.
Tax attorneys can specialize in areas including estate, corporate, international, and personal tax.The type of tax attorney you choose will depend on your specific situation. For instance, if you are looking for a lawyer to help you draft a will or choose beneficiaries, a tax attorney specializing in estate planning would be a good choice.
A tax attorney can help negotiate with the IRS and other regulating agencies on your behalf and can assist with a variety of issues, including:
- Estate planning: choosing beneficiaries and drafting a will
- Tax evasion: being charged with intentionally failing to pay taxes
- Tax payment issues: handling underpayment and withholding tax issues
- Tax planning: figuring out how to do your taxes to get proper deductions and limit your liability
A tax attorney can also handle:
- Tax returns
- Business transactions
- Litigation
- Tax audits and appeals
When Should You Hire a Tax Attorney?
You should hire a tax attorney whenever you have a legal tax issue. Tax laws can be complicated, and are subject to change. Tax attorneys prioritize continued education and keeping up to date with tax legislation, making them a wise choice for helping you handle complex tax affairs.
If you get audited or sued by the IRS or other regulating agencies, a tax attorney can help negotiate with the agencies or defend you in court.
Tax attorneys can also help:
- Manage tax situations where the law is unclear, or you have a specific circumstance that a CPA is not equipped to handle
- Understand whether a planned tax decision is legal
- Establish an estate plan
- Set up payment for back taxes
- Handle property liens (when the IRS attempts a claim against your property due to nonpayment of taxes) or account levies (when the IRS takes your property as payment for a debt)
- Stop wage garnishment
- Litigate tax disputes if you are being taken to court by or want to sue the IRS
- Represent you during an IRS tax audit or if you get charged with tax fraud
- Explain the tax result of a proposed business transaction
- Represent you in Tax Court, the Federal District Court, or the Court of Federal Claims
Key Difference: CPA vs. Tax Attorney
The primary difference between a CPA and a tax attorney lies in their expertise. A CPA is trained to help you manage your finances so that you can avoid tax issues, while a tax attorney has the skills and education to help you straighten out tax issues once they arise.
Differences Between a CPA and a Tax Attorney
| CPA | Tax Attorney |
| Works to circumvent tax issues | Resolves tax issues |
| Determines your financial situation and how much you owe in taxes | Advises on tax law |
| Can help ensure legal compliance with general tax issues | Can provide legal counsel for complex tax issues as well as subjects unrelated to taxes |
| Best for financial advice | Best for legal advice |
When to Use a Tax Attorney vs. a CPA
Due to their extensive legal knowledge, tax attorneys are better suited for defending tax cases in court, while CPAs are better equipped to handle bookkeeping, help you with tax planning, and file tax returns.
A CPA is a good choice if you need financial advice, bookkeeping services, or help filing taxes.
A tax attorney is your best bet if you owe back taxes. Also, if you have been charged with tax fraud, or want to avoid having your assets levied.
Conclusion
When choosing the right tax professional, you should consider their training and areas of expertise. CPA or a tax attorney, you should choose based on how well they understand your needs.
If you need someone to help you prepare and file tax returns or provide accounting services, hire a CPA.
If you underpaid your taxes, are being sued by the IRS, or need to protect your assets from tax liens or levies, a tax attorney can help.
If you are a small or medium-sized business in need of accounting, hiring a CPA is a wise choice. They have the expertise to assist with your various accounting needs.
