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Tax Accounting Defined - Signing Tax Forms

Tax Accounting Defined

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What is tax accounting?

Tax accountants are certified public accountants with extensive training that includes a degree in finance or accounting with special expertise and focus on taxation. That means they are trained in the complexities of preparing tax returns, both on the state and federal level, for individual and business clients. A person who studies to become a CPA must pass a rigorous state exam with a special focus on tax issues and then meet extensive continuing education requirements in order to retain their designation as a CPA.

Tax accountants must understand the regulations contained within the Internal Revenue Code, which lists the rules for tax returns that all individuals and companies must follow. Tax accountants also must stay on top of changes in IRS regulations, which occur on a yearly basis.

The Internal Revenue Service has recognized this expertise in tax matters and designated tax accountants as one of only a few classes of professionals given full access to represent clients before the IRS. That is an important distinction because in the event of an IRS audit, any client would want the individual who worked on the tax return to be present at the audit or to be able to appeal an IRS audit. The IRS only extends that privilege to tax accountants, along with enrolled agents and tax attorneys.

Because of the education and training, tax accountants are able to help individuals and businesses with other issues in addition to preparing tax returns. Tax accountants can produce reports, based on company financial information, to show the current financial state of the business and project cash flow needs for the near future. In a company setting, tax accountants also can put internal controls in place to discourage fraud or manipulation of the company’s financial figures. Those controls are required under federal law for all large public corporations and are often embraced by smaller companies.

Many choices for tax return services

Individuals and companies have many options when it comes to preparing tax returns. Most experts recommend that all businesses and most individuals rely on outside help for tax preparation because of the complexity of some tax issues and the importance of getting the job done properly. There are several options available, including tax preparers, enrolled accountants and tax accountants. A tax accountant is probably the most expensive choice of the three because he or she is the most highly trained. A tax preparer often has gained experience through a course offered by the company – such as H&R Block – that he or she works for. An enrolled agent is often a former IRS employee and must pass a training test given by the agency.

A tax accountant is the best choice for businesses or individuals with more complex tax and financial issues. Additionally, a tax accountant can be hired as a year-round employee or consultant to put a system in place to collect financial information on a daily or weekly basis that will be needed at time tax. In addition, tax accountants can make suggestions that can maximize tax deductions and are available outside of tax season for other financial advice.

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