Tax attorney or CPA: Which does your business need?

Small business owners regularly encounter complicated tax topics. As tax issues arise, you may wonder whether a tax attorney or certified public accountant (CPA) is better suited to help you. The answer depends on your business's specific tax needs and goals.

Both professionals help with tax planning and advising clients through complicated tax situations, but there are some key differences in qualifications and scope of work. Here's how you can effectively protect your business by selecting the correct tax professional for the job.

Qualifications of tax attorneys and CPAs

Both tax professionals have extensive education and training in their field.

Tax attorneys complete a bachelor's degree and three years of law school. Some law schools offer a joint law degree and Master of Laws (LLM) in taxation program, one semester longer than a typical law school program. Additionally, all tax attorneys must pass the bar exam in their state and have a legal focus on tax issues within their practice.

CPAs have, at minimum, a bachelor's degree with 150 credit hours. The additional credit hour requirement beyond the typical 120-credit-hour bachelor's degree means that many CPAs choose to obtain a master's degree in accounting, taxation, or business. Additionally, a CPA must pass the CPA exam and have a certain number of years of experience in the industry, as determined by their state.

Because states determine the qualifications for CPAs, certain states may require additional educational or work experience beyond this minimum. Some states have an ethics exam requirement as well.

Is a CPA or tax attorney right for your situation?

CPAs and tax attorneys can play different roles in assisting your small business. Both CPAs and tax attorneys offer tax planning advice based on current tax law, with the goal of reducing your overall tax liability. Both professionals have continuing education requirements that ensure they are up to date on current tax topics and changes in tax law. The difference is in the scope of their work.

A CPA's role focuses on maintaining your small business's financial records, preparing financial statements, and preparing tax returns. CPAs are an ideal business partner to have for day-to-day accounting and tax issues. Your business's CPA can also offer tax planning advice throughout the year to help minimize your tax liability. You can strategize together on business decisions, such as appropriately timing your major asset purchases.

On the other hand, while a tax attorney can also provide tax planning advice to clients, the distinct advantage of a tax attorney comes in the form of dispute resolution assistance with the Internal Revenue Service (IRS). Tax attorneys have an in-depth knowledge of tax law principles and current case law precedents. They are experts in negotiations and arguing your case in court.

Additionally, if there is the potential for criminal charges from the IRS as the result of the dispute, seek the help of a tax attorney. Conversations with your tax attorney are generally protected by attorney-client privilege, so they will remain confidential. Your business's tax attorney will not be forced to testify against you as a result of your conversations.

If you need a tax professional who is an expert in accounting and tax preparation, seek out a CPA. If you have a specific legal concern or are dealing with an IRS dispute, seek out a tax attorney. It may behoove you to have an ongoing relationship with both types of tax professionals if you encounter complicated tax situations frequently in your line of work.