Very few people are aware of the fact that when a CPA passes the CPA exam in their state, there are few (if any) questions on the CPA exam that deal with income tax (personal or business, or any other kind of tax). In fact, the CPA exam does not cover anything dealing with small business issues. CPAs are taught how to work with publicly-traded businesses (i.e., large businesses). CPAs are NOT taught anything about how to deal with a business with 50 or fewer employees (and especially businesses with 10 or fewer businesses).
Few people are aware of this fact: CPAs are NOT required to obtain CPE (Continuing Professional Education) in taxation (i.e., income tax). It is true that CPAs must take a minimum number of hours of CPE to maintain the CPA credentials, however, there is no requirement for the CPA to take any CPE in taxation (income tax) in order to maintain their credential.CPAs also are not required to take CPE that relate to small business issues.
So, how does an individual (or small business owner) know whether or not a CPA is qualified to properly handle the small business accounting/bookkeeping and income tax issues? How does an individual know whether a CPA is qualified to properly prepare a 1040 tax return?
Just because a CPA is a member of the AICPA or a state CPA organization does not mean that the CPA is qualified to perform the work necessary to properly handle small business accounting and income tax issues. Does this mean that all CPAs are unqualified to handle small business accounting and income tax issues? Does this mean that a non-CPA is better qualified to handle these issues?
The answer is NO to both of the above questions. While there are CPAs that are not true CPAs (they only have the credential, but they have never worked in accounting in any way), most CPAs do work in the accounting field, and many CPAs also prepare tax returns (both individual and business).
The question is, how do you determine whether or not a CPA (as well as a non-CPA accountant) is qualified to handle YOUR specific situation (small business or individual)? Credentials can be helpful in making this decision. However, credentials can also be easily obtained without having any experience to back up the credential.
The best way to determine whether a CPA or a non-CPA accountant is qualified to handle YOUR specific situation is to sit down with the potential CPA (or non-CPA accountant) and ask that individual a lot of questions - such as:
- What type of CPE have your recently completed?
- How many hours of CPE have you completed in areas such as: income taxes, small business accounting, etc.?
- Are you certified in a specific accounting software program (such as QuickBooks)?
- How long have you worked with (accounting program)?
- How many clients have you worked with using (accounting program)?
- How many business/individual income tax clients do you work with?
- How many tax returns do you prepare per year? What percentage are individual (1040) tax returns? What percentage are business (1065/1120/1120S) returns?
- Can you provide current and former (individual/business) references that I can contact?
- Do you require engagement letters for ALL work that you perform?
- Do you have current professional liability (errors and omissions) insurance?
- Are you available year-round (especially for income tax issues that may come up)?
- What additional services do you provide, if any?
- How do you verify that your work is accurate (especially related to income tax work)?
Just because a CPA (or non-CPA accountant) has experience in small business accounting and income tax preparation does not necessarily mean that the CPA (or non-CPA accountant) is right for you. If you own a small business, you need to make sure that the CPA (or non-CPA accountant) has experience in working with clients in your industry. If the CPA (or non-CPA accountant) has not worked in your industry, how long would it take the individual to become familiar with your industry? (This will vary by industry, as some industries are heavily regulated at the federal and/or state, and possibly even the local government level.)
When it comes to business and income taxes, not all CPAs (including non-CPA accountants) are familiar with multi-national business issues, or income tax issues outside the United States. If you have any concerns about multi-national business or income tax issues, you need to make certain that you ask about these issues prior to "engaging" the CPA (or non-CPA accountant) to handle your accounting and income taxes.
Hiring the wrong CPA (or non-CPA accountant) can cause you serious problems in the future. Hiring the right CPA (or non-CPA accountant) may not be cheap, however, doing so is an investment, not just an expense. The right individual will help your business to grow and minimize your tax burden, without breaking the law, and without causing you to lose sleep.
If you are a business owner, you must keep in mind that it is possible for your business to outgrow your accountant. This is not necessarily a bad thing. There may come a time when your accountant has to let you go as a client. Again, this is not necessarily a bad thing. Circumstances can (and often do) change for both you and your accountant over a period of time.
Fees charged by a CPA (or non-CPA accountant) are often the first thing that is looked at when looking for a new CPA (or non-CPA accountant). Fees should be one of the last things considered. If you hire the wrong CPA (or non-CPA accountant), you will have paid that individual his or her fees, and then you will have to pay someone else to redo the work that was previously done (which will cost you more money). Fees charged, whether high or low, do not guarantee or mean quality, timely results. One thing to note is that a CPAs usually charge higher fees than non-CPA accountants.
Just because someone (like myself) is not a CPA (i.e., I am a non-CPA accountant) does not mean that I cannot do the same work as a CPA, and possibly do it better than a CPA. There are only a couple things that a non-CPA accountant cannot do that a CPA can do - a CPA can represent anyone before the IRS on any tax matter, and a CPA can performs Audits and Reviews. A non-CPA accountant cannot represent everyone before the IRS - we are limited to only clients that we prepared and signed the tax returns for - and we can represent our clients only up to a certain point with the IRS. A non-CPA accountant also cannot perform Audits or Reviews. (In most cases, a small business will never need an Audit or a Review of their financial statements.) In most cases, a non-CPA accountant will not have large clients (such as publicly-traded businesses that are required to file reports with the SEC).