Does a CPA Do Taxes? A Breakdown of Their Services

Certified Public Accountants (CPAs) are licensed financial professionals who understand accounting principles and tax laws. They offer a broad spectrum of services, encompassing more than just tax preparation. CPAs handle various tax matters, providing financial guidance to individuals and businesses.

Core Tax Services Provided by CPAs

CPAs prepare and file tax returns, ensuring adherence to federal and state regulations. For individuals, they commonly prepare Form 1040, the U.S. Individual Income Tax Return, which calculates taxable income and determines tax liability or refund. This form reports wages, interest, capital gains, and other income sources.

For businesses, CPAs handle specific tax forms based on the entity’s structure. Partnerships, including LLCs taxed as partnerships, use Form 1065, U.S. Return of Partnership Income, to report their financial performance to the IRS. S-corporations file Form 1120-S, U.S. Income Tax Return for an S Corporation, which reports income, gains, losses, deductions, and credits, with income and losses passed through to shareholders. C-corporations use Form 1120, U.S. Corporation Income Tax Return, to report income, gains, losses, deductions, and credits, calculating their corporate tax liability.

CPAs also prepare specialized returns. These include Form 1041, U.S. Income Tax Return for Estates and Trusts, for income generated by estates or trusts, and Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, for estate tax purposes. Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, is prepared for gifts exceeding annual exclusion amounts.

Beyond Tax Preparation: Other Tax-Related Services

Beyond tax return preparation, CPAs offer strategic tax planning services to minimize tax liabilities throughout the year. They advise on the tax implications of various financial decisions, such as retirement contributions, investment strategies, or the optimal business structure for tax efficiency. This proactive approach aims to align financial activities with tax advantages, rather than simply reacting to tax obligations at year-end.

CPAs also provide audit representation, assisting clients if a tax authority, like the Internal Revenue Service (IRS), initiates an audit. They manage communications with the tax agency, prepare and submit necessary documentation, and advocate on behalf of the client to resolve discrepancies or disputes. This representation can alleviate the burden and stress associated with a tax audit.

CPAs offer broader tax consulting and advisory services. This includes guidance on the tax consequences of significant life events, such as marriage, divorce, or the purchase and sale of property. They also advise on business transactions, international tax issues, or charitable giving strategies, providing insights that go beyond routine compliance.

Understanding CPA Qualifications and Licensing

The designation of Certified Public Accountant signifies a professional who has met rigorous standards in the accounting field. To become a CPA, individuals must fulfill specific education, examination, and experience requirements. This includes completing 150 semester hours of college coursework, which exceeds the traditional 120 hours for a bachelor’s degree.

Candidates must also pass the Uniform CPA Examination, a comprehensive assessment consisting of multiple sections. These sections cover areas such as Auditing and Attestation (AUD), Financial Accounting and Reporting (FAR), and Regulation (REG), which includes U.S. federal taxation and business law. After passing the exam, aspiring CPAs need to gain one to two years of relevant work experience, supervised by a licensed CPA. Maintaining the CPA license requires ongoing continuing professional education (CPE) to ensure professionals remain current with evolving tax laws and accounting standards.

When to Engage a CPA for Tax Matters

Engaging a CPA for tax matters is particularly beneficial when an individual’s or business’s financial situation presents complexities. This includes scenarios such as being self-employed, owning a business, managing rental properties, or dealing with significant investments. These situations often involve intricate tax rules and deductions that a CPA can navigate efficiently.

Major life changes often warrant the expertise of a CPA due to their tax implications. Events like marriage, divorce, the birth of a child, or buying and selling a home can significantly alter one’s tax position. A CPA can provide guidance on how these changes affect filing status, deductions, and credits.

For those with specific financial goals, such as retirement planning, wealth management, or substantial charitable giving, a CPA offers strategic advice to optimize tax outcomes. They can help structure these activities in a tax-efficient manner. If one receives correspondence from the IRS or faces an audit, a CPA can represent them, handling communications and providing necessary documentation.