Just a smattering of countries – such as oil-rich Middle Eastern countries, a few Caribbean and South Pacific Islands and the like – have no income tax. The rest of the world, however, requires individuals and companies of all sizes to perform tax accounting. In the United States, tax accounting of any kind must adhere to the Internal Revenue Code (IRC).
TL;DR (Too Long; Didn't Read)
Governed by the Internal Revenue Code, tax accounting focuses on taxes rather than the appearance of financial statements for the company's stakeholders.
What is Tax Accounting?
It’s easy to think that "accounting is accounting," but there are several methods of accounting. When a company reports financials to investors, it may use different frameworks for accounting than for reporting to the Internal Revenue Service. American companies typically use generally accepted accounting principles (GAAP) for reporting their earnings. For the tax man, however, a company wants to highlight losses, write-offs, depreciation and expenses to offset earnings and reduce taxes owed, so they use IRC for this report.
Tax filing mistakes can lead to massive financial penalties for both individuals and companies. To avoid the risk of audits or penalties, use a tax CPA to complete your tax accounting.
What is a Tax CPA?
A certified public accountant is an accountant that specializes in preparing taxes. They're state-certified, although most states accept certification from other states. Tax area specialty is up to the CPA in question. They may choose to be a personal tax CPA or they may have an affinity for corporate taxes. Small businesses and self-employed persons may all have different situations that can benefit from a CPA that focuses on those niches.
It’s not required that an accountant be a CPA in order to do taxes or general bookkeeping, but to work as a tax preparer in some jobs, including the corporate level, state and federal authorities may require certification. Professional certification is attained only after passing the CPA exam.
Accounting programs involve coursework in matters like financial and estate planning, taxation principles, tax and cost accounting, auditing and tax laws at federal, state and local levels. Sitting for the CPA exam is up to the test taker, and they can choose to do so at any time.
Which CPA Exam is the Hardest?
When it comes to professional certification, two exams are constantly debated as to which is the hardest – the bar exam for becoming a lawyer or the CPA exam. Even people who’ve taken both have a hard time choosing which is of its four sections is tougher to pass, and, in the end, they're all similarly hard with a 50-50 chance of failing.
All four CPA section exams must be taken separately and passed within 18 months to count toward certification. Overall, fewer than 50 percent of takers pass. For best success, review organizations recommend sitting for the FAR section first because it covers more topics than any other portion and can set you up to perform better in other sections within the 18-month deadline.
Many CPA review courses exist to help aspiring accountants on their quest for certification.
Should You Hire an Accountant?
With one of the toughest professional exams in America, it speaks to the complexities of doing taxes and the consequences of getting them wrong. Hiring an accountant might be an expensive proposition, but it's a tax deduction.
A good accountant can find write-offs, give insight on when to make capital purchases and how to benefit from losses. Most importantly, they're protection against getting audited. With so much riding on your accountant's shoulders, get one that comes well recommended with good professional standing.
To keep accounting fees low, use accounting software they recommend. With smartphones today, there are countless third-party applications that can help you track expenses and other incidentals and work with popular accounting software. Ask your accountant if they have any they prefer and can offer you a reduced subscription for.
- a-wrangler/iStock/Getty Images