How to Become a Tax Accountant?
What is tax accounting?
Tax accounting is a special area of accounting that employs a special set of principles different from other types of accounting work. Tax accounting falls under the rubric of Other Comprehensive Basic of Accounting (OCBOA), rather than the Generally Accepted Accounting Principles (GAAP).
Tax accountants work in various working environments, including government agencies, private businesses, multinational corporations, for individuals, and accounting firms. They can even work freelance. Tax accountants are in demand and needed year-round – not just during tax return filing season.
Duties of a tax accountant
The duties of a tax accountant can include:
– Organize and prepare tax returns
– Examine financial statements
– Create budget plans for clients
– Help clients to increase income and improve profitability
– Organize clients’ financial records
– Compute taxes owed by clients to the IRS
– Ensure clients are compliant with regulations
Business Tax Accounting:
Accountants working with small businesses often operate as independent accountants with multiple business clients. They’ll find themselves preparing income tax documents for their clients and helping with payroll taxes. Smaller businesses often hire an independent tax preparer to handle a small number of employees.
Tax accountants working with larger corporations are usually employees, helping their employer to find deductions, prepare property tax documents, and work with federal and state tax returns. They often consult with executives on how to increase deductions. Licensed CPAs may oversee a team of bookkeepers who organize the tax pay-outs of all employees. The lead accountant will be in charge of overseeing each end-of-year income statement.
International Tax Accounting:
International tax accountants are hired for their knowledge on taxation in the foreign nation, and how it impacts IRS filings. Many tax preparers working with international taxes hold their CPA certification. As it’s really difficult to maintain expertise on the taxation practices in multiple foreign countries, it is standard that international tax accounting practices specialize in one or more related countries.
International tax accountants are employed by both individuals and businesses who have income tax returns that reflect foreign and domestic earnings. US expatriates often need an accountant who can sort their income tax filings.
A lot of tax specialists work for the IRS. Tax accountants working for the IRS may be carrying out tax return audits, offering advice to individuals or businesses, or settling appeals in court.
EAs are hired to represent clients in Tax Court and can offer complete confidentiality to clients.
Areas of expertise
Some tax accountants choose to pursue further specialization. Examples of areas of tax accounting expertise include:
Tax advising is helping clients to legally reduce their tax liability, and requires knowledge of federal, state, and local tax laws. Tax advisors need to understand how financial choices affect taxation and how to best manage assets to achieve taxation outcomes.
Some tax advisory experts earn professional certifications, such as the certified planner designation.
Some employers will only hire tax accountants with accounting certifications. These include the CPA (Certified Public Accountant), certified management accountant, and certified financial forensics designations.
External auditors typically work for accounting firms or governmental organizations, examining financial records for evidence of tax evasion or financial crime.
Internal auditors typically work for businesses, assessing financial activity and looking for performance improvements. They also monitor company accounting procedures and ensure accurate financial reporting.
An Enrolled Agent is a specially certified tax accounting expert, who carries out duties for clients. Typically duties of an EA include representing clients in dispute resolution negotiations and arguing cases before the IRS.
What is the difference between a CPA and an EA?
CPAs are state-licensed accounting professionals. CPAs may be one of the following:
– Business advisors
– Corporate accountants and executives
– Financial planners
– Forensic accountants
– Tax consultants
EAs are federally-authorized tax practitioners who:
– Represent taxpayers before the IRS on matters such as IRS audits and appeals
– Provide tax advice
– File tax returns for individuals, corporations, partnerships, estates, trusts, and other entities
EAs are specialized professionals who focus on tax issues, and job opportunities may be found at tax preparation franchises or working for a CPA. In comparison, CPAs often work for the government, in the private sector, for organizations or for individuals – including self-employed work. Job titles held by CPAs include CFO, controller, tax specialist or auditor.
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Tax accountant salaries
In 2020, the median pay in the tax accountancy field was $55,640.
Because tax accounting falls under OCBOA, transactions are reported differently. In comparison to those working under the GAAP, tax accountants working under OCBOA can defer reporting a transaction until its debts are settled. Therefore it is often recorded on a statement a year or more after it closes.
According to Universityhq.org, the average salary for tax accountancy at the different career stages are:
– Entry Level: $52,300
– Mid Career: $63.800
– Late Career: $70,400
Factors including location, industry and experience level will determine your earnings. Generally, accountants who work in the private sector in affluent areas with a higher cost of living earn the most.
Career outlook as a tax accountant
The US Bureau of Labor Statistics projects 96,000 new jobs for accountants and auditors during the 2020-2030 period.
So, what are the steps to becoming a tax accountant?
- Earn your bachelor’s degree
All tax accountants start with a bachelor’s degree in accounting. Approximately 35% of accounting graduates are hired to work in taxation, so the earlier you prepare for this niche, the better. During your studies, consider taking special classes to concentrate on this area of specialty. You can also seek internships with tax accountants during your studies.
- Consider a graduate program
Many accounting majors then move on to pursue graduate programs. In graduate school, some will choose a Master of Accounting program which offers a specialty in taxation. Others will choose a Master of Tax Accounting, as MS in Taxation, or even a MBA program focusing on taxes.
- Choose your certification and obtain your licensing
Tax accountants can hold various certifications and licenses.
On average, it takes 8-9 years to become a CPA, as you need to complete 150 credit hours prior to sitting the four-part exam. To qualify as a CPA, candidates must comply with the education and experience requirements prior to the exam. These requirements vary between states, but it is usually at least a bachelor’s degree and two years of public accounting experience. After this you have 18 months to take the CPA exam, which has a very low pass rate. In comparison, it takes far less time to become an EA.
The cost of getting your CPA license is highly dependent on where you go to school for your bachelors or continue on to get your masters. Then purchasing study materials for the CPA exam is dependent on what you wish to buy, and the cost for sitting the exam depends on the state in which you plan to be licensed. The license itself averages at $150.
Each state has its own conditions for maintaining the CPA license, but for most it is 40 hours of continuing education per year, with 4 hours of this covering ethics.
To obtain your licensing in your state as a CPA, contact the American Institute of Certified Public Accountants and apply for a seat to take your CPA exam.
To qualify as an EA, candidates must pass a three-part test, pass a background check and have their application approved by the IRS. To maintain their role as an EA, they must complete 72 hours of continuing education every three years and comply with the Department of Treasury’s ethical standards.
Another path many tax accountants take is through the Accreditation Council for Accountancy and Taxation, who offer examinations in four areas:
– Accredited Business Accountant
– Accredited Tax Advisor
– Accredited Retirement Advisor
– Accredited Tax Preparer
- Pass your exam
Passing your CPA exam will grant you CPA certification and allow you to apply for licensing in your state.
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