The going assumption is that if you want to start a business or if you need help with accounting or taxes, then you need a CPA. While there are CPAs that do focus in these areas, the vast majority do not. That’s kind of like meeting a doctor and assuming he has a family practice or meeting a lawyer and assuming he does personal injury cases. Those are the most visible practice areas, but there are lots of other areas to specialize in. There are essentially 2 things that you would specifically want a CPA for, they can certify audit reports and financial statements. That’s something that upwards of 90% of businesses will never need.
Easily the most frequent question I get asked is, “Are you a CPA?”, or they’ll make some sort of statement that makes it clear that they assume that I’m a CPA. I am not. It’s understandable since I’m performing all of the tasks that they think they need a CPA for. I’m eligible to take the CPA exams, and I might do that one day, but it’d be just for the sake of brand recognition. The CPA designation isn’t necessary for what I do, it isn’t really even relevant.
My main focus is on taxation. Not just preparation but looking at the whole big picture and how it effects your personal life and/or business. That allows me to better serve my clients for their bookkeeping, payroll, and other accounting needs. The certification that is the most appropriate for that is Enrolled Agent. One thing I learned after I decided that this was what I wanted to do, was that unless you’re an accountant, you’ve probably never heard of an EA.
The Enrolled Agent designation is the highest certification you can get from the IRS, and it’s the only one that is purely taxcentric. The CPA exams cover a broad range of topics, only one of which is taxation. Exam 1 is all about tax. Exam 2 is all about taxes. Exam 3 is about representation. You need to do a minimum of 16 hours of continuing education each year, 2 hours of ethics, all the rest is about taxes.
This time of year everyone is very aware of the impact that taxes have on their lives. For individuals it’s really a year round thing, but most people only really think about it once. For most small businesses they don’t need to care about annual reports or GAAP accounting or anything like that, for them everything really just boils down to their taxes. This is why I, and many EAs, do bookkeeping work as well. With everyone that I work with I make sure that all of their records can survive an audit and I advise them on strategies focused on long term tax savings rather than just lower their taxes in the current year.
Taxes are a factor in every level of business and are often the most complex part of it. Sales tax for example is far more complicated than it should be. It should break down to if you sell a product then you collect sales tax. But, like all the other areas, it’s a system that’s controlled by politicians, lawyers, lobbyists. I have one client that is run a vet clinic. If she were to charge someone from trimming their pet’s nails, she doesn’t have to charge tax on that. I have another client that’s a dog walker. If she charges for trimming nails then she has to collect tax. A couple of weeks ago I was working with someone who has a commercial flooring business. There are all sorts of different rules as to when he would or wouldn’t have to collect tax. They have to factor in things like the type of building, what the building is being used for, what phase of construction it’s in, etc.
So generally when people think that they need a CPA, what they’re really saying is that they need a tax expert. Their are some great CPAs out there who specalize in taxation and small business account. EAs, however, are the only ones who are tested solely on taxes and have tax related continuing education requirements.