In the event that the assets or shares of a company have been sold off or liquidated, a subsequent tax is placed on any profits accrued therein, of which is primarily payable to the governing body. This taxable percentage can vary depending on the amount, value, and nature of the liquidated assets.

However, certain caveats exist that allow an individual to retain more of their profits and reduce the total percentage of tax that is placed on the assets and shares, one among which is referred to as entrepreneurs relief.

Entrepreneurs relief, in short terms, is a form of tax relief geared towards proprietors, directors or shareholders of a company as it is being liquidated or sold off in some manner, wherein the capital gains tax involved in said liquidations and sales are reduced significantly – up to fifty percent, in fact.

What is Capital Gains?

The term capital gains refers to the difference between an asset’s initial value and that of its relative value once it has been liquidated or otherwise sold – oftentimes simply being referred to as “gains”.

In terms of company asset liquidation and selling, this can equate to the shares of a company being valued significantly higher than they were initially found to be due to the company growing or similar circumstances.

A similar circumstance can be found in the fact that the assets of a liquidated company or that of a company selling their assets have also gained in value as time passes, of which is subject to capital gains tax in the event that they are sold off.

What is Capital Gains Tax?

By extension of the concept of capital gains is capital gains tax – a levy placed on any subsequent profits accrued from the liquidation or selling of company assets and stocks, especially in the case of a dissolved or otherwise winded up company.

At the current time, the ordinary rate of capital gains tax is thirty-three percent, of which may be lowered through the use of entrepreneurs relief or other forms of tax relief related to the liquidation or disposal of a company and its underlying assets.

Why does Entrepreneurs Relief Exist?

In the UK, entrepreneurs relief has in fact been replaced with a similar but more effective bill therein dubbed “business asset disposal relief”, wherein it serves much the same function of reducing the capital gains tax incurred from disposing of business assets down to a much smaller ten percent.

However, despite this, the original purpose of entrepreneurs relief still lives on in its successor tax break, wherein directors and shareholders being placed at a disadvantage due to the liquidation or dissolution of their company and its assets can receive a larger sum of money from said liquidation.

There are limits to entrepreneurs relief, however, as it is not a catch-all tax break, and can only apply to certain assets and certain companies that fall into the described criteria.

What Company Assets Qualify for Entrepreneurs Relief?

In order for a particular asset to qualify for the reduced capital gains tax that is under the purview of entrepreneurs relief and its replacement tax break, several criteria must be met by said asset and its company at the time of its disposal or liquidation.

The largest and most obvious among these is the fact that the asset must be owned beneath a trading company – as well as also in the ownership of a sole trader who is utilizing said asset in a trade.

In terms of shares of a company qualifying for entrepreneurs relief, said shares must be held by a sole trader who is in the employ or related in some way to the trading company that is being liquidated or is selling their shares.

How Does a Company Qualify for Entrepreneurs Relief?

Much like how an asset or company share must meet certain criteria in order to qualify for the tax reduction benefit of entrepreneurs relief, the company being traded or liquidated must also fit the criteria for reduced capital gains tax.

The first of these criteria is the need for the company to actually retain ownership of assets, securities or other forms of financial implements and inventory that may undergo the process of liquidation.

Apart from the obvious need for actual assets and shares, the company must also have been in existence for longer than three years, as a requirement for individuals qualifying for entrepreneurs relief is the direct ownership of a share or asset for a continuous period of three years at a minimum.

However, certain characteristics of a business can do quite the opposite – and preclude the company from qualifying for the tax breaks imparted by entrepreneurs relief.

These are that of a company in possession of securities or other forms of investments, as well as company ownership of development land or letting land, all of which will require more complex motions and caveats to be addressed instead of entrepreneurs relief.

Who Qualifies for Entrepreneurs Relief?

In order for the designated recipient to qualify for the reduced capital gains tax of entrepreneurs relief, they must retain ownership of whatever asset that is being disposed of or liquidated for a period of three years at a minimum.

This is in tandem with the requirement that the business asset be used or employed beneath a qualifying company – a set of criteria mentioned in the previous section of this article.

If the particular financial implement being sold off is that of company shares, the individual must have retained a minimum of five percent ownership of said stock pool being sold for a minimum of three years, much like that of qualifying assets.

How is Entrepreneurs Relief Calculated?

Apart from the life-time limit of one million euros that may be deducted as a tax break from capital gains tax, a flat ten percent tax rate is applied to any money made from the disposal or liquidation of company assets and shares.

This tax rate, otherwise known as capital gains tax or CGT, is not applied to the entire value of the asset or share being sold, but instead the difference between its original paid value at the time of purchase and that of its liquid value at the time of selling.

As such, an asset qualifying beneath entrepreneurs relief that was originally purchased for two-hundred euros and sold for three-hundred euros will only have a tax cost of ten euros, for example.

Even in the event that the asset is sold for less than it was purchased for or that no due taxes are applicable in the sale of said asset, a tax return must still be filed for the purposes of record keeping and verification.

Does Entrepreneurs Relief Apply to Insolvent Company Liquidation?

Though now known as BADR or business asset disposal relief, entrepreneurs relief does apply to profits made from the liquidation of a company’s assets and shares – though with certain caveats that must be accounted for in the event that an insolvent company wishes to file for a capital gains tax break.

Among these is that the liquidation of said company must be of a voluntary nature, such as in the case of a member’s voluntary liquidation instead of a compulsory liquidation as would be imposed by the companies house or a court order.

As such, by the very nature of this particular rule, insolvent companies not undergoing voluntary liquidation are automatically disqualified from the benefits of entrepreneurs relief.

This may be avoided through the usage of a CVA or company voluntary arrangement, either with creditors or in a court of law.

References

1. Unknown Author. (N.D.) “Business Asset Disposal Relief” UK Government. Retrieved on February 9 2022 from (https://www.gov.uk/business-asset-disposal-relief)

2. Jason Fernando, Lea D. Uradu, Timothy Li. (January 20 2022) “Capital Gains Tax” Investopedia Tax Laws and Regulations. Retrieved on February 9 2022 from (https://www.investopedia.com/terms/c/capital_gains_tax.asp)

3. Gennaro A. Insolvency Risk and Value Maximization: A Convergence between Financial Management and Risk Management. Risks. 2021; 9(6):105. https://doi.org/10.3390/risks9060105

4. Michael J. Buckle, John L. Thompson. (1995) “The UK Financial System: Theory and Practice” Manchester University Press ISBN 0719048168, 9780719048166

In the case of a company voluntarily choosing to wind up their operations, one of such options available to them is that of the member’s voluntary liquidation, wherein a company of solvent capacity and without outstanding liens or legally binding motions is closed by the decisions of its constituent members.

Member’s voluntary liquidation is considered among one of the most tax efficient methods of voluntary company dissolution and as such is often one of the first options for such a situation – though this is not to say that member’s voluntary liquidation does not have a cost and its own set of drawbacks.

Member’s voluntary liquidation and its subsequent taxes are considered an excellent option in the case of a company’s liquidation due to the relatively low percentage of tax that is placed on the assets and funds withdrawn from the solvent company to be liquidated.

What is Members Voluntary Liquidation?

Member’s voluntary liquidation, otherwise abbreviated to MVL, is a legal motion performed for the purposes of ending the affairs and operations of an otherwise legitimate and solvent company.

Marchford – a team of closure specialists – note that the primary purpose of a member’s voluntary liquidation is the subsequent distribution and administration of company assets and funds to its members prior to the company being removed or “struck off” in the companies house department of the government.

Like all large scale transfers of wealth and assets, the dissolution of a company with distributable funds and corporate assets is subject to taxation, both in terms of a percentage and in a gross amount usually set by the volume and value of said distributable company assets.

How is a Members Voluntary Liquidation Performed?

Apart from making the appropriate consensus and decisions to liquidate and otherwise cease operations of the company, the director or directors must declare that said company is in a state of solvency and is otherwise capable of paying back their creditors and other liabilities within twelve months or sooner.

Apart from this, the company must appoint a licensed insolvency practitioner or similar certified professional liquidator so as to ensure that no area of the liquidation proceedings is overlooked and in order to facilitate the disbursement of funds and assets once the dissolution process has been completed.

From this point onwards, the liquidator and their agency (if not a solo contracting liquidator) will notify the companies house and other concerned parties of the company’s desire to cease operation and of the subsequent liquidation of its assets.

As is true to their job title, the liquidator will liquidate said assets once the appropriate parties have been notified and subsequently distribute the funds or other financial materials to the proper individuals, as well as pay back any liabilities or creditors if such circumstances are the case.

Is Members Voluntary Liquidation Cheaper for Taxes?

Yes – member’s voluntary liquidation is considered the most efficient method of liquidating and dissolving a solvent company in terms of taxation, wherein any funds or assets withdrawn from the shut down company will be considered beneath the business asset disposal relief clause and as such only subjected to a measly 10% tax rate.

This, of course, is in addition to the annual exempt amount that is applicable to every form of capital gains within the threshold set on an annual basis, and as such said threshold amount will not be factored into the tax percentage calculation during voluntary liquidation.

What is Business Asset Disposal Relief?

Business asset disposal relief is a relief clause that reduces the capital gains tax rate of any capital gains distribution from the sales, liquidation or other methods concerning a company entity.

In relation to member’s voluntary liquidation, this can equate to outstanding shares and liquidated assets only being subjected to a ten percent taxation rate as is the standard for any funds being withdrawn from a company beneath business asset disposal relief.

To qualify for this, however, the company must have been established and trading for two years at the minimum, as well as the fact that any assets of said business must be liquidated or disposed of within three years of the filing.

How and why is a Liquidator Acquired for Voluntary Liquidation Proceedings?

Liquidators may either be appointed by a governing entity, in a court of law, or externally hired from a firm by the dissolving company itself – as is the case in member’s voluntary liquidation.

The appointing of a professional liquidator is a requirement in the processing and completion of a member’s voluntary liquidation proceeding, as the liquidator will both legally ensure that no wrongdoing or illegal practices occur as well as ensure that the company’s affairs are entirely in order so as to prevent any problems from interrupting the MVL process.

Finally, the appointed liquidator will also be responsible for the disbursement of funds and company assets once the member’s voluntary liquidation procedures have been completed

How Much is Members Voluntary Liquidation Tax?

If qualified for business asset disposal relief via the route of capital gains, the tax rate is set at a solid ten percent of any money or assets withdrawn from the now closed company.

This, of course, does not include the tax free annual exempt amount within the capital gains tax threshold.

The business asset disposal relief tax rate is only applicable to member’s voluntary liquidation, however, as other routes of closing companies down such as company dissolution or insolvent voluntary liquidation do not qualify for capital gains tax relief beneath business asset disposal relief.

Are there Other Fees Involved in Members Voluntary Liquidation?

Apart from the compulsory tax rate that is subtracted from any funds withdrawn from the closed company, several other fees are applicable in the process of member’s voluntary liquidation, adding to the total cost of performing a member’s voluntary liquidation.

The first and most compulsory among these fees is the monetary compensation given to the insolvency practitioner or licensed liquidator for their services, of which will likely be variable depending on the size of the company, the complexity of the proceedings and the hours said liquidator spends on said case.

Other fees encountered during member’s voluntary liquidation are that of the public notification of the company’s closure in the Gazette, as well as several miscellaneous processing fees in concerns to the HMRC, companies house, court of law (if applicable) and liquidator agency.

What is Phoenixing and the TAAR Law?

Only recently brought into fruition, the TAAR or targeted anti-avoidance rule is a tax rule that changes the status of any funds or assets received from a liquidated company to that of income instead of capital, at least in the eyes of taxation agencies.

This, however, is not entirely applicable to every liquidation of a company, as this change in disbursement taxation is only applicable in the case of phoenixing, suspected tax avoidance, if the recipient is a stockholder in the liquidated company with a total stake of over five percent and that the liquidated company is legally considered closed or shut down.

All four of these factors must be encountered in a single case for the targeted anti-avoidance tax rule to apply to the recipient and their subsequent liquidated fund disbursement, of which will essentially invalidate the benefit of the business asset disposal relief and its capital gains tax threshold of ten percent.

In order to avoid this from occurring, it is important for the recipient to avoid phoenixing, a practice wherein they will conduct trade or operate a business similar in operation and name to the closed company that is disbursing liquidated assets.

Other methods to prevent the TAAR from interfering with the member’s voluntary liquidation tax is to conduct business and tax proceedings in a clear and communicable manner as well as to contract the services of a tax specialized audit firm so as to avoid making any blunders that may be misconstrued as tax avoidance or phoenixing.

References

1. Adam Hayes, Chip Stapleton. (May 30 2021) “Voluntary Liquidation” Investopedia Investopedia Corporate Finance and Accounting Retrieved on Feb 6 2022 from www.investopedia.com (https://www.investopedia.com/terms/v/voluntary liquidation.asp#:~:text=A%20voluntary%20liquidation%20is%20a,a%20court%20(not%20compulsory).)

2. Unknown Author. (N.D.) Australian Securities and Investments Commission. “Illegal Phoenix Activity” Retrieved on Feb 6 2022 from asic.gov.au (https://asic.gov.au/for-business/small-business/closing-a-small-business/illegal-phoenix-activity/)

3. E.Han Kim, John D. Schatzberg, Voluntary corporate liquidations, Journal of Financial Economics, Volume 19, Issue 2, 1987, Pages 311-328, ISSN 0304-405X, https://doi.org/10.1016/0304-405X(87)90007-9. (https://www.sciencedirect.com/science/article/pii/0304405X87900079

With the large multitude of different occupations and individuals directly acting beneath the financial sector, it is by no stretch of imagination that corporation executives and individuals in need of assistance with their finances may become confused when presented with the different options available to them.

Fortunately, for most ordinary individual financial needs, highly specialized and certified professionals such as experienced CPAs or similar are not quite needed, so long as the particular financial problems do not require specific expertise.

An accountant and a financial advisor may be differentiated by the particular services they offer and their specific function within an organization in the event that they are part of a firm or agency. Depending on the entity or individual’s needs, either an accountant or financial advisor is a suitable candidate for assistive financial work.

What Does an Accountant Do?

An accountant is an individual working in the financial sector wherein they may or may not act as a certified professional, capable of dispensing advice pertaining to taxation, auditing, finance, corporate and asset insolvency and many other duties related to the world of business and finance.

The term accountant, however, may be used by any sort of person that wishes to refer to themselves as such, and it is only by taking a certification exam that an accountant may be considered professionally competent in the field of accountancy, oftentimes taking on the job title of CPA, chartered accountant, chartered professional accountant or similar honorifics titles.

Oftentimes, accountants are employed either by an accounting firm wherein they are placed within a specialized department or one meant for general accounting purposes or they may also work as independent contractors, usually available to the public.

While accountants, especially of the certified kind, are skilled in a variety of financial tasks and objectives, certain types of accountants specialize in specific fields therein related to the subject of account, and as such the particular job of any one accountant may vary depending on their position in their firm or company.

What Does a Financial Advisor Do?

A financial advisor, on the other hand, is another form of finance related professional who focuses on the provision of financial advice as a personalized service. This financial advice is often custom tailored for the particular entity or individual and their specific financial situation or position. 

Unlike the job occupation of an accountant, financial advisors are not legally allowed to call themselves as such without first undergoing specific training and becoming a registered member of certain financial advisor related organizations, usually governed and regulated by a federal body.

However, other types of professionals working within the financial sector are also legally allowed to refer to themselves as a financial advisor without first taking the prerequisite certifications and qualifications normally required of individuals desiring to become a financial advisor.

These types of individuals may be working as registered financial brokers, certified investment advisors, private bankers, certified accountants, financially-related attorneys, agents of insurance firms and financial planners.

Financial advisors most often fulfill their duties by performing a cursory analysis of their client’s financial portfolio, taking into account such things as stock positions, low-liquidity properties, real estate, cash and projected futures so as to formulate an adequate strategy either as a way to combat the client’s debt or to develop their wealth in a stable manner.

Can Accountants do Financial Planning or Financial Advising?

While accountants can possibly be knowledgeable or experienced enough to provide sound financial advice and financial planning, their professional scope in particular makes the advice they are normally certified to provide somewhat more technical than that of a financial advisor or financial planner. 

This is due to the fact that accountants, especially if certified, primarily focus on the analysis and summarization of financial transactions, otherwise known as the present cash flows of a corporate entity or individual with highly liquid assets.

Normally, most individuals within a certain wealth level do not often require an accountant owing to the relative simplicity of their financial situation. While it is entirely possible to hire an accountant for personal expense and finance accounts, the premiums or price related to these services may be higher than is necessary.

Financial advisors or planners, on the other hand, are better suited to individuals or estate entities that desire to create a concrete strategy for the growth and protection of their current assets. Financial planners or advisors specialize in this by being intimately familiar with concepts such as personal budget management, non-aggressive investment strategies and retirement accounts provided both at a corporate and federal level.

These particular specialties pertaining to the focus of financial advisors create a perfect assistant for planning a strategy to overcome debt or to enact a long-term plan for future finances, of which are not a particular specialty of most generalized accountants.

Do Financial Advisors Offer Accounting Services?

While financial advisors are generally certified in matters of finance and as such are usually qualified enough to perform certain tasks under the purview of account services, it is not their specialty and as such they do not normally offer such benefits to their clients.

Financial advisors specifically function in an advisory capacity- hence their name-, with a particular focus on the present and future state of their clients’ financial situation, oftentimes connecting the client with other members of the financial profession in order to shed further light on their possible financial avenues.

Considering the fact that accountants normally perform their duties as auditors, financial assessment and analyst specialists or otherwise as financial statement disclosure agents, it is unlikely that a financial advisor will be experienced enough in these fields to provide an adequate enough job, warranting instead the hiring of a certified accountant to work alongside said financial advisor.

This particular arrangement is in fact quite common, especially for corporate entities or individuals with significant sums of money and highly valuable assets, as a financial advisor and an accountant working in tandem may provide a full-scale analysis and planning strategy of a client’s entire financial portfolio.

Are Financial Planners Different from Financial Advisors?

Generally, the duties of a financial planner and that of a financial advisor are practically the same at first glance, with both finance professionals acting in an advisory capacity concerning the individual’s or entity’s long term financial goals.

However, where these two particular careers differ is in the specificity of their meaning, wherein a financial planner is a certified and qualified professional that not only advises but also strategizes a plan or program so as to allow the client to meet their long-term financial goals in an efficient and fool proof manner.

The career title of financial advisor, on the other hand, simply refers to any certified or otherwise qualified financial professional acting in an advisory capacity in terms of individual financial management, including that of investment advice and other financial capacities involving the future of said client.

Are Financial Advisors Salaried or Commissioned?

Certain financial planning firms or banks may elect to provide their customers the services of in-house financial advisors of which are compensated through a salaried position within the organization. However, this is relatively uncommon, and salaried financial advisors are not as common as financial advisors being paid on a commission by commission basis.

Apart from providing financial planning for prospective clients, financial advisors may also earn commissions from acting as middlemen or salesmen for financial assets like real estate property, stocks, insurance plans or loans. 

This is not to say, however, that financial advisors are not compensated on a commission basis, whether as individual contractors or employees of an organization. This is due to the nature of a financial advisor’s job wherein they primarily work with separate clients, and as such their duties are only brought into play in the event that an interested party chooses to hire them or the firm at which they are employed.

Unlike accountants, financial advisors may charge on an hourly basis or a retainer fee if kept on retainer, particularly in cases of continued financial development concerning a corporate entity or particularly wealthy individual. 

This equates to financial advisors possibly being less expensive to employ, depending on the particular difficulty of the client’s financial state and the sort of assets they possess in their financial portfolio.

When Should You Hire an Accountant?

Making the decision to hire an accountant, whether as a corporate entity or as an individual, depends on several factors or the presence of certain situations that warrant the presence of a financial professional and their subsequent expertise.

Certain periods in a company’s life cycle such as during the formulation of their initial business plan, during taxation season in the United States or even during the process of a dreaded Internal Revenue Service audit. 

In situations such as these, the presence and advice of a certified accountant may in fact save the corporate entity large sums of money in penalties by certifying financial statements and otherwise providing strategies that allow the corporate entity to financially function as efficiently as possible.

Even as an individual, freelance accountants or agent accountants of an accounting firm are an excellent avenue in managing one’s finances and financial options in situations such as filing of tax claims and returns, the planning of a small business formation or even simply financial advice concerning the individual’s own personal monetary situation.

In particular, it is a wise choice for small business owners to hire the services of a commission compensated accountant with the proper certification, especially in matters concerning the federal or municipal government. 

Because of the intense bureaucratic documentation involved when dealing with governing bodies concerning finances, the experience and connections of an accountant are invaluable and will help protect the business owner’s interests from costly errors and oversights that they may not even be aware of.

When Should You Hire a Financial Advisor?

Making the decision to contract the services of a financial advisor, on the other hand, is a more situational choice and as such is not usually undertaken on a regular basis for most ordinary individuals. Financial advisors aid individuals or smaller businesses in becoming knowledgeable about the particular strategies involved in achieving or maintaining long-term financial success.

In the event that the client is already knowledgeable about said financial strategies and similar subjects, it may still be beneficial to hire a financial advisor in the capacity of a financial assistant, wherein they may act as an agent of the individual or corporate entity pertaining to matters of their financial future and strategic financial goals.

However, care must be taken so as to prevent significant damage to the client’s prospects or current financial decision by improper or low-quality financial management. Unqualified or otherwise uncertified financial advisors, for example, may provide disastrous advice that can end in large amounts of money being lost in unstable markets or through federally implemented penalties.

References

1. Taylor, Don (2005). C. Bruce Worsham (ed.). Financial Planning: Process and Environment. Bryn Mawr, PA: The American College Press. p. 9.3. ISBN 1-932819-08-8.

2. Friedman, A. L., & Lyne, S. R. (2001). The beancounter stereotype: towards a general model of stereotype generation. Critical perspectives on accounting, 12(4), 423-451.

3. Unknown Author. “Choosing investment professional investment advisors”  Financial Industry Regulatory Authority. “Investment Advisers.” Accessed July 22,, 2021.

4. Troy Segal, Michael Logan. (July 2021) “Finding a financial advisor or planner” Investopedia Investopedia.com

In many countries with convoluted tax codes that require companies to report and file their own internal taxes, it is not uncommon for accounting firms or even freelance accounting professionals to provide their services so as to facilitate the filing of these taxes.

However, there is quite a distinct difference between the services provided by these accounting professionals, especially in that of the exact method at which they have arrived at their current profession, and as such it would do many business owners well to learn the distinction between these different professionals.

Tax preparers, in comparison to CPAs, are not as qualified for the deep and complex factors that are brought into account when calculating the maximum possible federal tax return as well as the little intricate details of each tax law, especially when concerning state-level or even municipal-level tax code.

What Does a Tax Preparer Do?

Tax preparers are individuals certified by the Internal Revenue Service to prepare tax filings, returns or claims in return for monetary compensation. In layman’s terms, this means that tax preparers are usually hired for the purpose of doing the taxes of a corporate entity or individual who will pay them upon completion of the job.

However, the tax preparers sector is primarily an unregulated profession with very little in the name of certification, registration or even formal education requirements and as such many freelance or independent contractor tax preparers may provide a lower quality service as opposed to other members of the same profession.

Keep in mind that the term tax preparer is also interchangeably used to refer to any member of the financial sector certified and capable of preparing documents pertaining to tax returns, filings, and claims, and as such certified accountants, bookkeepers, CPAs and professional financial firm agents may also call themselves tax preparers in certain instances.

In the event that you are looking for a tax preparer to hire that does not otherwise possess any of these other credentials, it is possible to investigate their background and tax preparer qualifications in the Internal Revenue Service’s treasury network, of which they must be licensed within so as to operate under the purview of federal law.

What Does a CPA Do?

The abbreviation CPA refers to the profession known as a certified public accountant, wherein legally and educationally qualified accountants may act within an accounting firm or as independent contractors in order to provide their financial services to any individual of the public.

While it depends on the particular location, the majority of CPAs must first undergo a licensure exam, possess a college degree and also have at least a single year of experience working as an accountant or in a similar profession within the financial sector.

Certified public accountants, unlike tax preparers, are capable of offering a wide variety of services not only pertaining to the filing and claiming of taxes, and as such require a higher compensation when being kept on retainer. Amongst these other services are business consultation, financial audit services, estate planning, financial management planning and, of course, tax preparation and planning.

The majority of CPAs are usually employed either directly by a corporation or otherwise by association through an accounting firm. However, some CPAs in certain areas of the western world have instead chosen to either work for the public sector as public servants or to otherwise act as independent contractors which govern their own accounting services.

Does a Tax Preparer Have to Be a CPA?

While the term tax preparer can also, by technical definition, refer to certified public accountants as well, the profession of tax preparer does not in fact require the individual to be a certified public accountant or to possess anything remotely close to their qualifications at all.

Thus, it is entirely possible for a tax preparer to offer their services without possessing CPA certifications, and as such tax preparers are the ideal choice for simpler tax preparation jobs, as their rates are often lower than that of professional accountants such as CPAs.

And in vice versa, CPAs are also automatically considered tax preparers by nature of their profession. While the internal revenue service requires that tax preparers possess a PTIN certification in order to work under the legal definition of a tax preparer, it is only certified members of the financial profession that are granted specific representation rights by the IRS.

However, this may depend on the particular country or state jurisdiction the tax preparer is choosing to practice in, and as such this particular legal distinction is not always reliable. As always, it is up to the company or individual to decide whether their accounting assistance is of sufficient quality.

Are Tax Advisors Tax Preparers?

While the general function of a tax advisor and tax preparer is practically the same in the eyes of the federal government, they are in fact distinctly different and as such should not be confused between one another.

Tax advisors provide a more in-depth analysis into the financial tax state of an individual or entity than a tax preparer would owing to a higher level of interest placed into their particular client’s case. This equates, often, to a more efficient but slower service that may cost somewhat more than the services of a tax preparer.

While tax preparers often only require a cursory exchange of information in order to prepare their services and advise the client on reducing their income tax liability, tax advisors often require a partial to full disclosure of the client’s financial information as well as may interview them on their own personal goals or the goals of their corporation.

Is a Tax Accountant the Same as a Tax Preparer?

The term tax accountant most often is found to refer to certified public accountants, financial professionals who have undergone careful examination and education in order to perform their jobs. Tax accountants may assist their clients not only with filing of taxes and their subsequent returns but also during IRS tax audits, of which no corporation will wish to undergo without significant accounting assistance.

Tax preparers, on the other hand, are not licensed to aid their clients during an IRS financial audit and as such may only provide their services on a situational basis, most often pertaining to the narrow scope of advising their clients in regards to preparing and filing of tax-related documentation.

Tax accountants may also provide advice much like a tax preparer would, with the added extension that their advice may encompass the entirety of the client’s estate and financial plans, providing a full coverage of their accounts, whether it be an individual or an entity.

Can Anyone Be a Tax Preparer?

As the legal definition of an individual capable of acting in a professional capacity to prepare taxes is rather lax, it is likely that nearly anyone desiring to do so can develop a career as a tax preparer.

Considering the fact that the only requirement to being a licensed tax preparer is possessing an IRS Preparer Tax Identification Number, persons from all walks of life and levels of experience may work beneath the title of tax preparer.

This often results in tax preparers widely differing in levels of experience, subjective skill and even educational attainment. This is not to say, however, that tax preparers that do not possess these qualifications will not perform an adequate or even excellent job, however, and it is entirely up to the individual client or corporate entity to decide the best course of action for their particular needs.

In the event that the client is still unsure of whom to hire, it is best to take the safe route and pay a higher premium for the services of a CPA or accounting firm, as it is likely these individuals not only have undergone rigorous education to achieve their title but also possess colleagues they may consult in the event that they cannot perform an adequate service.

Are CPAs the Same as Accountants?

The term CPA, as previously mentioned in this article, is simply abbreviation of the job title certified public accountant, and as such it is by no stretch of logic to reason that all CPAs are considered accountants.

However, the opposite is not true at all, and not all accountants may be considered CPAs. The particular training required to become a certified public accountant is somewhat different than that of becoming an accountant, and as such this minor distinction separates the two professions at a certain level.

Among these distinctions is the Uniform CPA exam, a type of professional certification exam that a certified public accountant prospective must first pass prior to being legally certified to work in their desired profession. 

While accountants must also be registered with certain organizations in order to legally provide professional accounting services, their field of focus may be more specific or specialized than that of a CPA. 

A large majority of fields other than that of a certified public accountant may be pursued by accountants that desire higher certification, such as that of a certified internal auditor, or even the prestigious certified management accountancy qualification.

What Sort of Software Do Tax Preparers and CPAs Use? Can You Use Tax Preparation Software Instead?

With the advent of modern tax software, professional financial advisors such as CPAs and tax preparers have been forced to adapt to a rapidly changing career sector, though this is not without its benefits.

Whether part of a large tax firm or working as a freelance professional, both CPAs and tax preparers may utilize proprietary tax software in order to facilitate their work, especially in simpler tax cases that do not require in-depth scrutinization.

Tax preparation software companies, while ordinarily developing tax preparation software for tax payers as an alternative to tax preparers or CPAs, also develop more specialized forms of their own software in order to assist financial professionals with their job, and as such are capable of increasing the speed and efficiency of both types of tax professionals.

Not all software is applicable to every tax situation, however, and because of this it is best to hire CPAs or tax preparers instead of using tax software yourself so as to prevent any discrepancies or errors from occurring. 

This is doubly as applicable if the client in question is a corporate entity or otherwise an individual with a significant amount of assets.

References

1. Unknown Author. “See generally Uniform CPA Examination: Examination Content Specifications, American Inst. of Certified Public Accountants, p. 11-12 (orig. issued June 14, 2002; references updated October 19, 2005)” (PDF). Cpa-exam.org.

2. Unknown Author. “Paid Preparer Review for National Public Liaison,” Office of Program Evaluation and Risk Analysis, Internal Revenue Service, U.S. Dep’t of the Treasury (Sept. 2007), as cited in IRS Publication 4832, “Return Preparer Review” (Dec. 2009)

3. Unknown Author. (August 2021) “Need someone to prepare your tax return?” U.S. Internal Revenue Service irs.gov