Do CPAs Do Taxes? Services and Preparation Process

A Certified Public Accountant (CPA) is a financial professional who has met rigorous education, examination, and experience requirements set by state boards of accountancy. This designation signifies a high level of expertise in accounting principles, auditing, and tax law. CPAs are authorized to perform specific regulated services, including providing expert guidance on complex financial matters. They assist with tax preparation and planning, offering specialized knowledge that extends beyond general accounting tasks.

Scope of CPA Tax Services

CPAs offer a broad spectrum of tax services, addressing the diverse needs of both individual taxpayers and various business entities. For individuals, CPAs can navigate complex income situations, such as those involving investment income, self-employment earnings, or significant itemized deductions. They assist with various tax forms, including Schedule C for sole proprietors, Schedule D for capital gains and losses, and Schedule E for rental property income. Their expertise ensures that individuals maximize eligible deductions and credits while maintaining compliance with federal and state tax regulations.

For businesses, CPAs handle tax preparation and planning for structures ranging from sole proprietorships and partnerships to S corporations and C corporations. This includes preparing forms like Form 1120 for corporations, Form 1120-S for S corporations, and Form 1065 for partnerships. They also provide guidance on payroll tax compliance, sales tax obligations, and other business-specific tax matters. CPAs assist with year-round tax planning, helping businesses make informed financial decisions that can reduce their overall tax liability.

Beyond routine tax filings, CPAs are equipped to manage specialized tax situations. This includes preparing returns for clients with multi-state income, foreign income, or international tax considerations. They can also assist with estate and trust taxes, navigating the intricacies of wealth transfer and fiduciary responsibilities. Furthermore, CPAs are authorized to represent clients before the Internal Revenue Service (IRS) in matters such as audits, inquiries, and appeals.

Their role extends to ensuring adherence to tax laws and regulations. CPAs stay current with changes in tax codes, providing accurate advice and preparing returns that meet all legal standards. This focus on compliance helps prevent penalties and ensures the integrity of financial reporting for all clients.

Information for Tax Preparation

To accurately prepare tax returns, a CPA requires a comprehensive collection of financial documents and personal information from their clients. Initially, personal identifying information is necessary, including full names, Social Security numbers for all individuals on the return, and dates of birth. Bank account details are also needed for direct deposit of refunds or direct debit of taxes owed. This foundational information ensures proper identification and facilitates secure financial transactions with tax authorities.

Income statements form a substantial part of the required documentation. For wage earners, Form W-2, Wage and Tax Statement, is essential, reporting annual wages and taxes withheld. Individuals with non-employee compensation or certain other income will provide various Forms 1099, such as 1099-NEC, 1099-INT, 1099-DIV, and 1099-B. K-1 statements are required for income or loss from partnerships, S corporations, or estates and trusts, detailing each partner’s or shareholder’s share of income, credits, and deductions.

Documentation supporting deductions and credits is also important for reducing taxable income. This can include Form 1098, Mortgage Interest Statement, for home mortgage interest paid, and property tax statements. Records of charitable contributions, both cash and non-cash, are necessary, along with receipts for medical expenses exceeding certain income thresholds. Educational expenses, such as tuition statements (Form 1098-T), and student loan interest statements (Form 1098-E) can also qualify for specific credits or deductions.

For those with investments, statements detailing stock sales, mutual fund transactions, and cryptocurrency activity are needed to accurately report capital gains or losses. Self-employed individuals or small business owners must provide detailed records of business income and expenses, including receipts, invoices, and bank statements. This allows the CPA to correctly calculate net earnings and identify all eligible business deductions.

Finally, details regarding any significant life events during the tax year are important, as these can have substantial tax implications. This includes documentation related to marriage or divorce, the birth or adoption of a child, the purchase or sale of a home, or significant changes in employment. Providing all these documents ensures the CPA has a complete financial picture.

The Tax Preparation Process

Once a client provides all necessary financial documents and information, the CPA initiates the tax preparation process by systematically reviewing the submitted materials. This involves organizing income statements, deduction receipts, and other relevant records to ensure completeness and identify any missing items. The CPA scrutinizes each document for accuracy and consistency, comparing reported figures against prior year returns or other financial statements where applicable.

Following the thorough review, the CPA proceeds with the meticulous task of preparing the tax returns. They input the financial data into specialized tax software, which helps in calculating tax liabilities, identifying applicable credits, and populating the correct forms. During this phase, the CPA applies their knowledge of current tax laws to identify all eligible deductions and credits, such as the Earned Income Tax Credit, Child Tax Credit, or various business deductions.

Throughout the preparation, the CPA often communicates with the client to seek clarification on specific transactions or to request additional supporting documentation. This iterative process is essential for resolving ambiguities and ensuring the accuracy of the final return.

Upon completion of the draft return, the CPA typically provides a copy to the client for their review and approval. This step allows the client to examine the prepared return, ask questions, and confirm the accuracy of the information before filing. Once approved, the CPA handles the filing process, which commonly involves electronic filing (e-filing) with the IRS and relevant state tax authorities.

After the returns are filed, the CPA provides the client with copies of the completed tax forms for their records. They also offer advice on proper record-keeping practices for future tax years, emphasizing the importance of retaining supporting documentation for a specified period, typically three years from the date the return was filed or the tax was paid, whichever is later.

Selecting a CPA for Tax Services

Choosing a CPA for tax services involves considering several factors to ensure the professional aligns with individual or business needs. Credentials and licensing are foundational; a CPA must hold a valid license issued by their state board of accountancy. Verifying their active license through state regulatory bodies provides assurance of their professional standing.

Experience with specific tax situations is another important consideration. If an individual has complex investments, foreign income, or self-employment earnings, it is beneficial to select a CPA with a demonstrated history of handling similar scenarios. Businesses should seek CPAs who are proficient in their industry and familiar with the tax implications unique to their business structure, such as partnership taxation or corporate compliance.

Communication style is also a relevant factor in selecting a CPA. A professional who clearly explains complex tax concepts and is responsive to inquiries can make the tax preparation process less daunting. Clients should seek a CPA who is accessible and willing to provide year-round advice, not just during tax season.

Fee structures for CPA services can vary, commonly including hourly rates, flat fees for specific services, or a retainer. It is advisable to discuss the fee arrangement upfront and understand what services are included to avoid unexpected costs.