When You Have A Health Problem, You See A Specialist, Why Not Do The Same With Your Taxes?
You've just had a heart attack.
Do you go to your primary care doctor or the ER? That's a no-brainer...
you go to the ER! Ok, that example is a little over-dramatic, however, if you had heart problems you're not going to take your primary care physician's advice.
Instead, you want a referral to someone who specializes in hearts, a cardiologist.
Why then when it comes to taxes do you just go to an accountant or CPA? What does your accountant or CPA specialize in - Taxes? Probably not! In fact most CPAs handle a variety of tasks from auditing to book-keeping to records.
While it sounds great to have one source for everything, it might not be the best option.
Go back to the doctor example.
While a primary care giver is knowledgeable on the whole body and has the MD to prove it, the reality is that he or she might not be the best place to go for a heart problem or a kidney problem or whatever else might be ailing you.
Much like the weight an MD holds in the medical field, a CPA is a highly respected designation in accounting.
These three letters do hold a lot of weight, however, they may not be the best certification for tax issues.
For one, the CPA exam is an "all inclusive" exam which covers all aspects of accounting.
That said, taxes are only a small part of this exam.
Much like any professional designation there is a certain amount of Continuing Professional Education(CPE) required to maintain this status.
Did you know that a CPA is never required to take another tax course for the rest of their lives? In fact, their requirements to maintain CPA status can be on any accounting subject.
Additionally, a CPA is only valid in the state the exam is taken(although there are reciprocity agreements that allow the possibility of being licensed in multiple states).
Now if your CPA is learning about bookkeeping, records and auditing, how much time can he or she really spend studying and learning taxes? Again, your tax professional is your tax doctor - do you want the primary care provider who can give you generalizations or the specialist who can give you solutions? If you're looking for that specialist, you need a tax professional, namely an Enrolled Agent(EA).
An EA is your best bet for taxes not only because of the stringent CPE requirements(72hrs every 3yrs of only IRS approved tax courses), but because the exam and CPE are only tax related subjects and it is nationally recognized as a Federal designation.
In fact, the exam itself is 3 parts: 1) Personal 2) Business 3) Ethics.
To top it off the only other way to become an EA is to work for the IRS for at least 5 years.
This means as an EA you have the tax knowledge of an IRS veteran! Another breed of tax preparer is the bookkeeper with an associates' degree who claims to be a "full service accountant".
This would be similar to a nurse without an RN posing as a doctor.
While they might know a good deal about their field, they are by no means a specialist.
In addition, there are the "quacks" out there.
These are the ones who until this year prepared taxes without even carrying the minimum IRS requirement, a Preparer's Tax Identification Number or PTIN.
Since the IRS made this a requirement for 2011 a lot of preparers went ahead and got a PTIN before 12/31/10 after which the IRS required a competency exam to obtain a PTIN.
They then go around presenting themselves as "fully licensed".
While this is true and there are many tax professionals out there that are in the process of obtaining EA, CPA or other financial professional certifications, the reality is that there are still plenty of fly-by-nights or "quacks" who just get this as a technicality and know nothing about taxes.
These are the most dangerous types as most have professional looking offices or store-fronts, usually with the words "Income Tax" on the front.
Even worse is that due to low over-head they try to sell their services by price-cutting all of the professionals and it isn't until the unsuspecting client receives an audit notice the following year that they realize they have been duped.
By then the fly-by-night preparer has up and left town to find another place to hock their wares.
An example of a non-specialist tax "professional" can be found in the best-selling book "The Millionaire Fastlane: Crack The Code To Wealth and Live Rich For A Lifetime" by MJ Demarco.
An excerpt from page 286 states: "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 my personal experience, I'd say the first accountant was either: a) the bookkeeper or "quack" posing as a tax professional, who either knows little or nothing about taxes OR b) a CPA who does taxes 3 months out of the year to earn extra money and is too busy with other accounting tasks to stay on top of tax related issues.
This professional probably lacks the most important skill when it comes to working with a tax client- INTERVIEWING the client.
Case study: A primary care doctor asks fellow doctors who they go to for their taxes.
Through these trusted referrals he hires a high-priced and legitimate sounding service provider whose clients are primarily doctors.
The doctor has a dilemma.
He earns a lot of money while his wife does not.
To remedy this situation the service advises him to file "Married Filing Separately" while his wife files "Single" this way he does not burden her with his potentially high tax liability.
While the strategy sounds viable, it is completely wrong and results in an audit.
In addition this poor individual was charged a "professional" premium of nearly $5000 for these services and come audit time that same professional actually wanted more money to fix the mistake that THEY made.
In this particular situation, the solution would have been to file "Married Filing Joint" and file for "Innocent Spouse" protection, something a tax specialist knows.
Thankfully there is a happy ending as the doctor found a competent and trust-worthy tax specialist who cleaned up the other one's mess and did it for much less than the original preparer charged.
The moral to the story: A tax specialist can save you in more ways than one! First off, a true tax specialist will charge you a fair price and secondly, they will do the job right the first time.
If not, they will stand behind their work as their business and their reputation is on the line.
Hope you enjoyed this and I look forward to helping better inform the masses on tax matters!
Do you go to your primary care doctor or the ER? That's a no-brainer...
you go to the ER! Ok, that example is a little over-dramatic, however, if you had heart problems you're not going to take your primary care physician's advice.
Instead, you want a referral to someone who specializes in hearts, a cardiologist.
Why then when it comes to taxes do you just go to an accountant or CPA? What does your accountant or CPA specialize in - Taxes? Probably not! In fact most CPAs handle a variety of tasks from auditing to book-keeping to records.
While it sounds great to have one source for everything, it might not be the best option.
Go back to the doctor example.
While a primary care giver is knowledgeable on the whole body and has the MD to prove it, the reality is that he or she might not be the best place to go for a heart problem or a kidney problem or whatever else might be ailing you.
Much like the weight an MD holds in the medical field, a CPA is a highly respected designation in accounting.
These three letters do hold a lot of weight, however, they may not be the best certification for tax issues.
For one, the CPA exam is an "all inclusive" exam which covers all aspects of accounting.
That said, taxes are only a small part of this exam.
Much like any professional designation there is a certain amount of Continuing Professional Education(CPE) required to maintain this status.
Did you know that a CPA is never required to take another tax course for the rest of their lives? In fact, their requirements to maintain CPA status can be on any accounting subject.
Additionally, a CPA is only valid in the state the exam is taken(although there are reciprocity agreements that allow the possibility of being licensed in multiple states).
Now if your CPA is learning about bookkeeping, records and auditing, how much time can he or she really spend studying and learning taxes? Again, your tax professional is your tax doctor - do you want the primary care provider who can give you generalizations or the specialist who can give you solutions? If you're looking for that specialist, you need a tax professional, namely an Enrolled Agent(EA).
An EA is your best bet for taxes not only because of the stringent CPE requirements(72hrs every 3yrs of only IRS approved tax courses), but because the exam and CPE are only tax related subjects and it is nationally recognized as a Federal designation.
In fact, the exam itself is 3 parts: 1) Personal 2) Business 3) Ethics.
To top it off the only other way to become an EA is to work for the IRS for at least 5 years.
This means as an EA you have the tax knowledge of an IRS veteran! Another breed of tax preparer is the bookkeeper with an associates' degree who claims to be a "full service accountant".
This would be similar to a nurse without an RN posing as a doctor.
While they might know a good deal about their field, they are by no means a specialist.
In addition, there are the "quacks" out there.
These are the ones who until this year prepared taxes without even carrying the minimum IRS requirement, a Preparer's Tax Identification Number or PTIN.
Since the IRS made this a requirement for 2011 a lot of preparers went ahead and got a PTIN before 12/31/10 after which the IRS required a competency exam to obtain a PTIN.
They then go around presenting themselves as "fully licensed".
While this is true and there are many tax professionals out there that are in the process of obtaining EA, CPA or other financial professional certifications, the reality is that there are still plenty of fly-by-nights or "quacks" who just get this as a technicality and know nothing about taxes.
These are the most dangerous types as most have professional looking offices or store-fronts, usually with the words "Income Tax" on the front.
Even worse is that due to low over-head they try to sell their services by price-cutting all of the professionals and it isn't until the unsuspecting client receives an audit notice the following year that they realize they have been duped.
By then the fly-by-night preparer has up and left town to find another place to hock their wares.
An example of a non-specialist tax "professional" can be found in the best-selling book "The Millionaire Fastlane: Crack The Code To Wealth and Live Rich For A Lifetime" by MJ Demarco.
An excerpt from page 286 states: "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 my personal experience, I'd say the first accountant was either: a) the bookkeeper or "quack" posing as a tax professional, who either knows little or nothing about taxes OR b) a CPA who does taxes 3 months out of the year to earn extra money and is too busy with other accounting tasks to stay on top of tax related issues.
This professional probably lacks the most important skill when it comes to working with a tax client- INTERVIEWING the client.
Case study: A primary care doctor asks fellow doctors who they go to for their taxes.
Through these trusted referrals he hires a high-priced and legitimate sounding service provider whose clients are primarily doctors.
The doctor has a dilemma.
He earns a lot of money while his wife does not.
To remedy this situation the service advises him to file "Married Filing Separately" while his wife files "Single" this way he does not burden her with his potentially high tax liability.
While the strategy sounds viable, it is completely wrong and results in an audit.
In addition this poor individual was charged a "professional" premium of nearly $5000 for these services and come audit time that same professional actually wanted more money to fix the mistake that THEY made.
In this particular situation, the solution would have been to file "Married Filing Joint" and file for "Innocent Spouse" protection, something a tax specialist knows.
Thankfully there is a happy ending as the doctor found a competent and trust-worthy tax specialist who cleaned up the other one's mess and did it for much less than the original preparer charged.
The moral to the story: A tax specialist can save you in more ways than one! First off, a true tax specialist will charge you a fair price and secondly, they will do the job right the first time.
If not, they will stand behind their work as their business and their reputation is on the line.
Hope you enjoyed this and I look forward to helping better inform the masses on tax matters!