If you operate a business of any size you need a financial and tax advisor. This service is best suited for a Certified Public Accountant (CPA), not an accountant.
What is the difference between a CPA and an Accountant?
The terms “Certified Public Accountant” and “Accountant” may sometimes be confused as being the same or synonymous. The fact is, they are very different. An “Accountant” is a general term referring to a person whose job it is to keep and inspect financial accounts (a.k.a. maintaining the general ledger) or bookkeeping. “CPA’s” are accountants who have passed a licensing examination in a state. The CPA must continually keep up with current tax laws in order to keep their license. The State Exam is a rigorous process which takes place over several days and tests for many facets of financial and tax expertise.
To see the entire requirements visit California State CPA Requirements for more information.
Business advantages using a CPA
CPA’s are more familiar with tax laws
Many states require not only that certified CPA’s pass the rigorous exam and extended education, but continue with their education on an ongoing basis as long as they practice. Using a CPA will greatly help reduce any errors in your accounting because of lack of current laws and best practices. They can do a thorough analysis of the books that a regular bookkeeper may of overlooked.
CPA’s can do financial analysis
Besides taking “Accounting Study” courses (actual bookkeeping courses) CPA’s are also educated on business related subjects such as “Business Law”, “Business Communications” and more in-depth accounting such as “Auditing”, “Taxation” and “Financial Statement Analysis”.
CPA’s can support you or your business in an IRS audit
While a CPA is eligible to represent you before the IRS in an audit, an accountant cannot. Accountants who are not CPA’s have limited representative abilities for their client(s) before the IRS. The IRS classifies them as “unenrolled preparers.” CPA’s ability to represent you before any IRS audit is good reason alone to use one.
Can help you / business financial planning services
CPA’s can do a very more detailed and thorough analysis of your books and and they can advise you on tax and financial matters. Given the high degree of education in accounting business and ethics, a CPA is more prepared to give you sound advice in these matters and puts his or her license on the line by giving tax and financial advice.
Hire a CPA to save money
Yes, it’s true, a CPA can help you save money. A skilled Certified Public Accountant can help you make sound decisions when it comes to helping setup your business or retirement. After all you don’t want to have to pay more than you have to. Hiring a CPA can help clear up any confusion and save you time and money. Another good reason to choose a professional CPA.
So, you could say that all CPA’s are accountants, but not all accountants are CPA’s. You owe it to yourself and your business to use the best resources and a CPA is just that, a truly valuable resource.
- Avoid these mistakes when choosing a CPA
- Ask Common sense Questions for a CPA
When looking for a CPA find a firm that includes a bookkeeper and a CPA Account or an individual CPA who does both. Often the best way of finding a good accountant is to get a referral from a friend or business colleague. Also check with Society of Certified Public Accountants in your state, which can make a referral.
Whether you’re hiring a full-time accountant for your business or outsourcing your accounting to a CPA firm, you need to make sure your accounting is in the right hands.
Avoid these mistakes when choosing a CPA
Here are some common mistakes for small businesses to avoid.
All accountants are not CPA’s
You’ll find that many large businesses hire accountants for the day-to-day and CPA’s for the final filings. Many people commonly mistake an accountant for a CPA or think that they are interchangeable. This is not the case, CPA have a decidedly distinct advantage over an accountant. A CPA has the ability to represent you in IRS audits, while an accountant only has limited ability to do so.
Ask Common sense Questions for a CPA
When selecting or interviewing a CPA, make sure to consider the following questions:
Does the individual hold an active CPA license?
All CPA licenses must be continually renewed in order to ensure that the CPA has updated their tax law education. Using someone who has a past due license may indicate that they may not have the latest knowledge or education which may help you. You can use this helpful tool to look up California currently licensed CPA’s – California Board of Accountancy – License Lookup.
Are your needs compatible with the CPA’s personality and communication style?
Interviewing the CPA is vital in order to get to know if your personalities will work well together. Also make sure that the person you interview will be the actual person working for you and that your business is not passed on to others at the firm.
When evaluating competency and compatibility, ask candidates how they would handle situations relevant to you. For example: How would you handle an IRS office audit seeking verification of automobile expenses? Listen to the answers and decide if that’s how you would like your affairs to be handled.
Does the CPA have the experience you need?
It make a difference when choosing a CPA to use one with relative experience to your business and/or industry.
Talk about fees
Important talk point for anybody are the fees. Most accountants charge by the hour, usually around $100 – $300. Some also work on a monthly retainer as well. Only you really know what you want to spend on CPA services. Don’t forget to add up the estimated annual charges based upon the services desired. Every CPA works differently, different speeds and competencies so don’t base your choice on price alone.
Ask for references
Be sure to ask for references, especially from clients in your industry. Ask them if they were satisfied working with the accountant, their services and past performance.
While not always the most glamorous task, choosing a qualified accountant (CPA) is an important part of a small business’s recipe for success.
CPAs for help with tax preparation, personal financial planning, auditing services, and advice on developing effective accounting systems
CPAs are no longer just number crunchers and tax preparers. They are business and financial strategists who help chart the paths of businesses and individuals. Individuals turn to their CPAs for tax and financial planning services, investment advice, estate planning, and more.
Business owners are sharp people, After all, they run businesses. But many of them are so busy running the business that they don’t have time to sit down and analyze their financial data. Tax time is a great time to start thinking about how to use your financial information to make better decisions about your business.Sageworks Chairman Hamilton
Businesses are tapping CPAs to not only manage finances and taxes, but also to determine profitable new product lines, help diversify investments, and provide a variety of other consulting and business services.
It’s a good idea to meet or at least speak with your accountant every month. Review financial statements and go over problems so you know where your money is going. Your accountant should go beyond number-crunching to suggest alternative ways of cutting costs and act as a sounding board for any ideas or questions you have.
Don’t do DIY accounting
Accounting is a technically skilled specialty profession; there’s a reason why people have to go to college for it. An experienced accountant understands the process and procedures necessary for all your bookkeeping needs. The CPA title is only awarded to people who have passed a rigorous a two-day, nationally standardized test. You want a professional on your team. This is crucial because errors could have a real monetary impact on your business. If you have no experience in accounting, it’s best left to the pros.
Keep your CPA up-to-date on what’s happening in your life. Are you getting married, divorced, having children, needing to plan for your child’s college education, expanding a business, or giving the business to an heir? You’d be surprised what life experiences can have a significant impact on your tax liability and personal financial goals.
Advantages of a CPA for Your Business
ven if you have a very small business or a single-person business, you probably need the services of a CPA, for several reasons:
CPA’s are licensed; accountants are not
A CPA is licensed by a state, and must keep current with tax laws in order to maintain a license in that state. Accountants aren’t licensed. The CPA exam is a rigorous process over several days, including many facets of financial and tax expertise.
After they are licensed, CPA’s also must comply with continuing education requirements in order to maintain their licenses; accountants don’t have this requirement. You can learn more about the standards that CPA’s must follow by checking out the CPA professional organization, the American Institute of CPA’s (AICPA).
CPA’s are more familiar with tax laws
While not all CPA’s specialize in small business taxes, almost all CPA’s are more familiar with tax laws than are accountants. Knowledge of the tax code is a big part of a CPA’s licensing exam and many CPA’s take tax courses every year to keep up to date on the Tax Code. An accountant also may be able to prepare and sign tax returns, but the designation of “accountant” does not provide assurance of certification, nor does it give the accountant the ability to represent you before the IRS, even if this person has signed your tax return. Accountants are classified by the IRS as “unenrolled preparers.”
The IRS requires all tax preparers to have a preparer tax identification number. and the IRS distinguishes between preparers who are enrolled agents, CPA’s, or attorneys, and other preparers (considered unenrolled preparers. Accountants who are not CPA’s are considered unenrolled preparers. An unenrolled preparer’s ability to represent a client in a tax matter before the IRS is very limited.
A CPA can support you in an IRS audit
Probably the biggest reason to use a CPA for your business taxes is that a CPA is eligible to represent you before the IRS in an audit, while an accountant is not. As noted above, accountants who are not CPA’s can only represent clients in a very limited manner. (Enrolled agents may also represent you with the IRS.) If you are paying to have a professional do your tax preparation, make sure this person has full authority to represent you in an audit and to execute claims on your behalf.
In other words, accountants do the routine work and they can complete tax returns, while CPA’s can analyze the work, represent you at a tax audit, and help you make more high-level business and tax decisions. Sure, CPA’s charge more, but you get what you pay for.