Why Small Businesses Need a CPA
Every business, no matter how small, needs a financial and tax advisor. But your business needs a Certified Public Accountant (CPA), not just an accountant.
CPA vs. Accountant
"Accountant" is a general term, referring to financial and tax professionals who follow specific rules and regulations, including Generally Accepted Accounting Principles (GAAP), which are rules and standards set forth by the . CPAs are accountants who have passed a licensing examination in a state. So, you could say that all CPAs are accountants, but not all accountants are CPAs.
Many small businesses use the services of an accountant, and there are many competent accountants serving small companies. For a very small business, an accountant may fill some of the accounting needs, but there are specific circumstances in which using the services of a CPA has advantages.
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. is a rigorous process over several days, including many facets of financial and tax expertise. After they are licensed, CPAs 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 CPAs must follow by checking out the CPA professional organization, the American Institute of CPAs (AICPA).
While not all CPAs specialize , almost all CPAs are more familiar with tax laws than accountants. Knowledge of the tax code is a big part of a CPA's licensing exam and many CPAs 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 .
Accountants are classified by the IRS as "unenrolled preparers."
The IRS requires to have a preparer tax identification number. and the IRS distinguishes between preparers who are , CPAs, attorneys, and other unenrolled preparers. Accountants fall into this last category. An unenrolled preparer's ability to represent a client in a tax matter before the IRS is very limited.
Bookkeepers perform routine tasks of records input (input of business income and expenses into a financial software program, for example); accountants review this input and prepare and analyze the financial reports ( and P&L). CPAs do more detailed and thorough analysis and they advise on tax and financial matters. Although the designation of "CPA" doesn't mean this individual is giving you the best advice, a CPA is more prepared and puts his or her license on the line by giving tax and financial advice.
Probably the biggest reason to use a CPA for your is that a CPA is eligible to represent you before the while an accountant is not. As noted above, accountants who are not CPAs 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 CPAs can analyze the work, represent you , and help you make more high-level business and tax decisions. Sure, CPAs charge more, but you get what you pay for.
Working with CPAs
firm that includes a bookkeeper and accountant. Then you can separate the more routine financial jobs from the tax and financial analysis done by the CPA. Or hire a bookkeeper for those monthly, quarterly and yearly financial reports, then periodically and have your CPA do your business taxes. You can also ask that the CPA review and sign off on your tax return that may have been prepared by an accountant working under the CPAs direction.