Are you now in this situation? I’ve been using  ______________ (fill in the name of your tax software) for several years and I am considering engaging a CPA to prepare my tax returns each year.  Why should I engage the services of a CPA? What facts should I consider in making this decision?
 □      Education – CPAs are required to complete a rigorous academic program before becoming qualified to sit for the CPA exam. Most states now have a 150 semester hour requirement. Therefore, your CPA probably has at least a Master’s degree.
 □      Certification – after completing the academic program all CPAs must successfully pass all four parts of a very demanding 20-hour professional exam. This exam has been described as being on par with, or even tougher, than the attorneys state bar exam. After the completion of the exam the CPA candidate must petition the state board of public accountancy for certification. The certification process includes a thorough criminal background investigation and a detailed review of all of the candidate’s academic and professional qualifications. Most states require that the candidate have at least two years of experience in actual practice, one year of which can be satisfied if the candidate has a Master’s degree.
 □      Regulation – after being licensed to practice by the state board the CPA is required to continuously maintain the highest standards of professional ethics. The academic requirements never end. Every CPA is required to complete at least 120 hours of Continuing Professional Education (CPE) every three years and must be recertified by the state board of accounting every 1-2 years, depending on the state. Additionally, certain CPAs who perform the attest function are required to have their practice operations reviewed by another CPA firm (Peer Review) every three years. The results are sent to the state board of accounting. If your CPA is a tax preparer he/she is also regulated and monitored by the Internal Revenue Service plus the state and local taxing authorities. Effective in October 2010, CPAs now are required to obtain and annually renew their Prepare Tax Identification Number (PTIN). This number must appear on all of the tax returns that they prepare.
 □      Experience – your CPA will have spent years in developing and acquiring a wealth of technical knowledge to continuously ensure that the depth and breadth of his knowledge exceeds the demands of his/her clients. The demands of public practice are so demanding that many will specialize in the services that they offer (i.e. tax, audit, management consulting) just as their colleagues in medicine and the law have done.
 Your CPA will be prepared to review all of your financial records and files to determine the requirements for compliance with the appropriate tax laws, plus where opportunities exist to minimize your tax liability. In a complex situation, tax research will be required by the CPA to determine the requirements that must be fulfilled prior to taking a specific tax position on your behalf. This includes knowing the required written documentation for each deduction or expense. He/she understands all of your rights under the law and will also be prepared to assist or represent you if any of your tax returns are audited.Â
 Your CPA is also an “advisor†who can assist you in the management of your financial affairs, tax and estate planning, some legal assistance, starting a new business, improving the financial performance of an existing business, etc.
Finally, I use the following criteria when discussing this situation with any new client:
1. If you understand all of the relevant tax law provisions and requirements for preparing your tax return using tax software, you should continue to prepare your own tax return;
2. If there are unique requirements for the past tax year and you just need to have a few questions answered, contact me and I’ll answer your questions. There are usually no charges unless more than 2-3 hours of my time will be required;
3. For whatever the reasons, if I can assist you in the preparation of your tax returns each year I’d like to discuss the opportunity with you. My goal every year is to save you more in income taxes, based upon my knowledge of the tax laws, than the fee that I am charging you for the preparation of your tax return.
Additional information on this subject from the Internal Revenue Service is presented below: (more…)