Steve Martin once did a great skit on how to be a millionaire and never pay taxes. "First … get a million dollars." Second, when the tax man comes to the door, Martin recommended: "Two simple words: I forgot!" If only the Internal Revenue Service (IRS) had a sense of humor.
As April 18 nears in the real world, most people find filing taxes to be somewhat … taxing. One of the largest tax preparation businesses, H&R Block, estimates that its well-trained professionals have prepared about one in seven U.S. tax returns since 1995. For those with complicated income tax situations, skilled tax preparation specialists go beyond merely "doing taxes" and instead serve as valuable advisors who enable clients to maximize tax savings within the law.
During tax season, accountants work with clients to:
- Review all documentation related to tax returns
- Apply tax laws
- Exercise judgment on appropriate treatment of taxable items
- Minimize tax bills
Senior partners in Certified Public Accounting (CPA) firms are responsible for securing clients, managing relationships with those clients, and supervising the work of preparers who handle the completion of tax returns. These professionals work closely with clients to build a detailed tax strategy that takes advantage of every legitimate tax-saving opportunity on local, state and federal tax bills.
Tax preparers: Money for nothing?
Some people think teachers have it cushy with those summer months off. Do accounting degree holders bask in tropical locations 11.5 months out of the year? Well, maybe not, but a majority of accounting firm income may be earned during tax time.
Mike Klaich, CPA of Reno, Nevada, estimates that "many accounting firms may earn between 40-60 percent of their revenues during the first and second quarters of each year." After the tax deadline, some firms allow qualified staff to work half-days on Fridays to compensate for long hours during the tax season crunch.
Some sole practitioners, such as Randy Kientz, of Reno, Nevada, actually operate secondary businesses during the off season. Kientz started a window cleaning business which he runs mostly outside of tax season, and he finds it to be a flexible way to supplement his income. Many tax preparers, particularly those in solo practice, will file extensions so that they can work steadily on tax returns through the fall of each year.
Beyond tax season, accountants review financial statements, perform internal audits, conduct ongoing client review and provide consulting services to clients. In addition, accountants and CPAs participate in continuing education and regular review of tax law changes. For most established accounting practices, this ongoing work necessitates year-round overhead expenses. So while tax season for accountants is much like an extended Black Friday for retailers, the reality is that business is transacted throughout the year.
What about Turbo Tax?
Yet, for everything accountants do, will people continue to find it necessary to hire one, when there's inexpensive do-it-yourself software as a substitute?
According to CBS Money Watch, only 21 percent of Americans use tax software. CBS conducted an experiment where an individual used three different tax software programs to prepare her taxes and compared the results to professional advice from a human tax advisor. The finding was that the advantages to hiring a pro with an accounting degree were "undeniable."
While anyone can buy tax preparation software, a qualified tax preparer is best able to interpret the tax law for an individual situation. In the CBS experiment, the human tax advisor pointed out opportunities for higher write-off amounts on non-cash donations, adjustments to business and home office deductions, and the advantage of opening a 529 college savings plan.
One CPA estimates that do-it-yourself tax preparation software may be a viable alternative for those with very straightforward tax returns, defined as a renter with one employer and a single bank account. Much beyond that, a tax preparer with an accounting degree can help clients think broadly about their circumstances and recommend the most advantageous application of the tax law for their unique circumstances.
Get the accounting degree: Then what?
Tax accountants may choose to be self-employed or to work for retail tax preparation firms, larger public accounting firms, corporations and government offices. "It's a great career," Klaich, the CPA, asserts. "There are so many opportunities for accountants."
A broad range of employment options exists for accounting degree holders. According to the University of Pennsylvania's Wharton School of Business, "The Accounting major is good preparation for those considering careers in corporate finance, treasury, investment banking, or private equity. Accounting may also be useful for those interested in careers in investment management, hedge funds, trading, consumer finance, and the government and military sectors."
It is possible to enter the field of accounting without an accounting degree. According to the U.S. Bureau of Labor Statistics (BLS), some junior college graduates find work as bookkeepers or clerks and later move into accountant positions after demonstrating skills on the job. However, the BLS cautions that a bachelor's degree in accounting or related subject is required for most accountant and auditor positions. "There are lots of paid internships within public accounting firms," Klaich explains. "Students who have an interest in accounting should pursue an internship to determine whether or not accounting is a good fit for them. Many internships have flexible hours, designed to work around a student's schedule; some interns work 20 to 30 hours per week and receive good compensation while learning on-the-job."
In order to advance in an accounting career, many professionals become CPAs. To become licensed as a CPA, an individual has to pass 14 hours of exams, complete supervised work, and perform audit work. The American Institute of CPAs explains that CPA licenses are issued by state boards of accountancy in 55 jurisdictions, and education and experience requirements vary from one jurisdiction to another.
The IRS rolled out new requirements for paid tax preparers starting on January 1, 2011. This three-phased program calls for paid preparers to obtain or renew a Preparer Tax Identification Number (PTIN) before preparing returns. Then, mid-2011, most paid preparers must pass an IRS Competency Exam. Finally, IRS Registered Tax Return Preparers must complete continuing education (CE) annually. Details on CE requirements are under development.
Tax preparers can expect to be winners
A 22 percent increase in accounting job openings is predicted by the BLS between 2008 and 2018, both because of job growth and due to existing accountant and auditor retirement or job transfer. Nationwide, median annual wages for accountants and tax preparers were approximately $68,200 in 2009, and the top 10 percent of accounts earned more than $100,000 annually.
As economic growth rebounds, the BLS anticipates that a greater emphasis on accountability, transparency and controls should take place in financial reporting. Heightened scrutiny of finance and accounting records may drive new job creation for accountants and auditors, particularly CPAs. Proficiency in accounting and auditing may not be enough to successfully compete for the most plum positions in large accounting firms. The BLS notes that employers are also interested in candidates with strong interpersonal and communication skills. Working on teams, accountants must communicate accounting and financial information clearly to both colleagues and clients.
An accounting degree is clearly an important first step on what is likely to be a lifetime of skill-building. In addition, trained accountants can personally benefit from their education when it comes to doing their own taxes. Because if the IRS comes calling, no one really wants to say, "I forgot."