When it comes to financial advisors, you may be unsure who you should work with in your specific situation. Understanding the different accreditations is critical when looking for a licensed tax professional to help you through your financial needs.
When making your decision about whom to work with, you may consider your options between an enrolled agent (EA) and a certified public accountant (CPA). Both of these financial advisors can help you maximize the tax efficiency of your investments, as well as assist you in creating and carrying out a financial plan that benefits you.
An enrolled agent, or EA, is a kind of tax professional who focuses narrowly on managing tax arrangements for business or private entities. EAs boast a wide range of knowledge in such tax-related subjects as income, estate, gift, payroll, levies, returns, inheritance, non-profit and retirement taxes. Once EAs passed their qualifying exam, the federal government recognizes them as tax specialists. An EA’s typical responsibility includes representing his or her clients—businesses or individuals—before the IRS on issues of audits, appeals or tax collection. An EA is the highest credential the IRS awards. A professional with this designation typically makes $15,000 to $20,000 more than CPAs annually. You’ll want to seek out an EA for any and all tax-related issues, as they’re the uncontested experts on such topics, according to the IRS.
What Is a CPA?
States approve CPAs, while the federal government approves EAs. CPAs typically do most of their work for public accounting firms of all sizes. They don’t just specialize in any one sector of accounting. Rather they can assist as advisors and consultants for all accounting, tax and financial services for the businesses, individuals and other organizations they may represent. CPAs help their clients set and achieve their financial goals through money management and financial planning. These goals could be anything from putting down a payment for a home to opening a new branch of business across the country. CPAs are the go-to if you’re looking for a broad scope of expertise.
When To Work With an EA vs. CPA
EAs and CPAs are both knowledgeable, experienced financial professionals who are held to high ethical standards. The primary difference between an EA vs CPA is that EAs specialize in taxation, and CPAs can specialize in taxation and beyond.
So, how do you know when to work with one over the other? That depends on the type of services you are looking for.
Working With an EA
If you need help with an IRS issue, such as a collection problem or an audit, working with an EA will be your best bet. These tax experts are adept at dealing with the IRS, and some EAs even worked as IRS agents before opening their own practices, giving them helpful insight to the most complex tax issues.
These tax professionals are also a great option if you need tax preparation and planning advice for an individual or business. While EAs can’t provide compiled, reviewed, or audited financial statements like most CPA’s can, they can generally put the business’s records into tax-basis statements that they then use to prepare a tax return.
Enrolled Agent vs. Other Tax Professionals
One of the most obvious things that set EAs apart from other tax professionals is the process to become certified. There are two different ways an individual can become an enrolled agent. The first way is to work for the IRS in a position that requires you to interpret the tax code for several years. The other, more frequently utilized path, is to pass the Special Enrollment Exam (SEE) and a background check.
The SEE is a three-part exam the IRS administers directly. It covers tax concerns for individuals and businesses as well as other practices and procedures. You do not need a college degree or any speciality schooling in order to take the exam.
Another major difference between EAs and other tax professionals is their unlimited practices. EAs are able to represent anyone on any matter relating to taxation, collection or appeals. The only other professional with representation freedom like this is a certified public accountant (CPA). EAs also have federal licenses, which means they can represent clients in any state or US territory.