Tax Attorney vs CPA: Which Is Right for Your Business?

Do I need a tax attorney or CPA? Learn more about which professional is right for your business in this guide.

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Updated: 4/10/24

Tax attorney vs. CPA: which is right for your business? This is an important question. While both a tax attorney and a CPA deal with taxes, they do have some key differences to consider. In this guide, we’ll cover the differences between CPAs and tax attorneys, when you might pick one over the other, and more.

What is a CPA?

CPA stands for “Certified Public Accountant.” A CPA serves clients for all their tax needs, including making financial reports, bookkeeping, preparing taxes, and even navigating tax audits.

CPAs get their “certified” title because they pass the CPA exam instituted by the American Institution of Certified Public Accountants. Typically, CPAs have to take 150 credit hours as part of their degree in accounting before they can even take the exam and receive their license. They’re also typically required to work under another CPA’s supervision for 1,800 hours before going independent. State statutes vary, but generally every CPA must complete continuing education, too.

As a result, CPAs are highly trained professionals who can help businesses and individuals navigate tax season and all their finance needs. A good CPA will help you assess your tax liability, reduce your overall tax burden, and make wise financial decisions.

When to Use a CPA

While you don’t have to hire a CPA, it’s recommended. That’s because a CPA can help you file your taxes, create your financial records, keep your books, and even navigate tax audits from the IRS or your state’s revenue department. They can also help you with your financial planning, create a long-term tax plan, strategize for future expenses, and more.

Whether you hire an employee to start your accounting department or hire an independent contractor to help with your tax preparation, hiring a CPA can be a big help to your small business.

What is a tax attorney?

A tax attorney is a licensed attorney whose specialty is tax law. They’ve attended law school, passed their state bar exam, and become a member of the bar association. Because tax lawyers study legal precedents and tax policy rulings, they can offer detailed guidance on how different tax planning decisions would affect your business finances. For example, a good legal professional can walk you through the pros and cons of choosing S corporation tax status. Many can also help you with business law questions and estate planning for your business assets. 

More importantly, a tax attorney is well-versed in tax laws and can represent you in court if you’re faced with a suit for your taxes. While an attorney probably won’t file your tax returns or create financial reports for you, they can help you navigate any potential legal issues caused by your tax situation.

When to Use a Tax Attorney

Hiring a tax attorney might seem like an all-negative situation, but that’s not necessarily the case. You might hire a legal expert for good reasons, too. For example, if you’re merging with or acquiring another business, you’ll need more than just a tax preparer. An experienced tax attorney can help you navigate that circumstance seamlessly. They can give you legal advice about your ongoing tax liabilities, too.

Of course, there’s also the possibility of some negative reasons to hire an attorney. You might find yourself facing a court hearing for tax issues, and a tax attorney’s legal counsel can make a big difference. It’s also important to remember that they uphold attorney-client privilege, so all of your conversations with them are confidential. If you’re facing a case with the potential for criminal charges, an attorney is essential.

Examples of When to Use a CPA vs. a Tax Attorney

Deciding whether your business needs the services of a CPA or a tax attorney depends on the specific financial situations and legal complexities your business faces. Here are some scenarios that highlight when to consider each professional’s expertise:

When to Use a CPA:

  1. Annual Tax Preparation and Filing: CPAs are experts in tax compliance and can help ensure that your business’s annual tax returns are accurately prepared and filed on time, maximizing tax savings through deductions and credits.
  2. Financial Planning and Strategy: For ongoing financial management, budgeting, and strategic planning to optimize your business’s financial health, a CPA can provide invaluable advice and insights.
  3. Auditing and Financial Reporting: If your business requires an audit, review, or compilation of financial statements, a CPA is qualified to conduct these engagements, providing credibility to your financial reports for investors, lenders, and other stakeholders.
  4. Accounting System Setup: CPAs can help set up and maintain your accounting system, ensuring that your financial transactions are correctly recorded, categorized, and reported.

When to Use a Tax Attorney:

  1. Legal Tax Disputes: If your business is involved in a dispute with the IRS or state tax authorities, including audits where there is a potential for significant penalties or legal issues, a tax attorney can represent your interests and negotiate on your behalf.
  2. Tax Debt Resolution: For businesses facing issues such as tax liens, levies, or significant tax debt, tax attorneys specialize in navigating these complex issues and can often negotiate settlements or payment plans.
  3. Business Structure and Transactions: When forming a new business, restructuring, or engaging in complex transactions like mergers, acquisitions, or sales, a tax attorney can advise on the legal and tax implications to help ensure compliance and optimize tax outcomes.
  4. Estate Planning and Trusts: Tax attorneys also specialize in estate planning, including the creation of trusts and other mechanisms to manage and protect personal and business assets for tax efficiency and succession planning.

In summary, CPAs are instrumental for routine tax compliance, financial reporting, and strategic financial planning, offering a blend of accounting expertise and tax preparation skills. Tax attorneys, on the other hand, are essential when legal tax issues arise, providing specialized knowledge in tax law, dispute resolution, and complex business transactions. Depending on your business’s current needs and future plans, you may find that one or both of these professionals play a crucial role in your financial and legal strategy.

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Tax Attorney vs. CPA FAQs

  • A CPA’s role is typically to help you avoid potential issues with the IRS. That said, if you are audited, your CPA can help provide detailed records to the IRS to make the experience as seamless as possible. A CPA can’t, however, represent you in legal proceedings.

  • A tax advisor is another type of tax professional who can help you with your  small business taxes. But unlike a CPA, a tax advisor doesn’t necessarily have the same level of training and certification. State laws vary a little bit for the continuing education and prerequisites for a CPA. But generally speaking, CPAs have extensive qualifications, making them better suited for complex tax issues.

  • It depends on your business situation. A lot of businesses need a CPA for their day-to-day tax and financial needs. However, if you regularly encounter issues where you’ll need to defend your tax controversy in court (or you expect to), you might need a tax attorney instead. Generally, it’s not uncommon for a business to consult with a tax attorney and a CPA at some point during its lifespan. Your financial situation can change over time, and accidental tax debts can happen. Needing the help of tax professionals like a tax lawyer or a certified public accountant is totally normal and okay. It’s always a good decision to get help when you need it.

  • Many legal and accounting professionals will offer an initial consultation so you can interview them and see if they’ll be a match for your financial goals. Since both professionals undergo intensive training and are approved by state agencies, you don’t have to worry about them meeting your experience requirements. But since you’ll be establishing an ongoing relationship, you’ll want to be sure they’ll help you meet your primary goals.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Written by Team ZenBusiness

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