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What is a Tax Advisor? What does a Tax Advisor Do?

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Question: What is a Tax Advisor? What does a Tax Advisor Do?
Answer:

What?! You don't have a tax advisor you trust to help you with your business taxes? It's never too late to start looking. Having a good tax advisor can mean (1) saving money at tax time (2) not having to pull out the records and do it yourself (and that's about as painful as going to the dentist!) and (3) having someone who can help if you get audited.

What is a Tax Advisor?

A tax advisor is a financial expert with training in tax laws. A tax advisor should be up to date on current tax regulations, which change every year. Tax advisors are regulated by the IRS, under Treasury Department Circular 230 (PDF), which also determines the types of professionals who may practice before the IRS. Included in this list are attorneys, CPAs, Enrolled Agents, and other registered tax return preparers.

What does a Tax Advisor do?

A tax advisor can help you with your business taxes - before, during, and after tax preparation:

Before: Tax advisors give advice on tax planning, but tax planning isn't done just before the end of the year; it continues throughout the year. You should be talking to your tax advisor at strategic points during the year - every quarter, at a minimum - to discuss strategies for minimizing your taxes (legitimately, of course - avoiding, not evading).

During: Your tax advisor most probably will also be your tax preparer, doing the work of preparing your business tax return and your personal tax return. If you pay business taxes through your personal tax return, the same person should be doing both returns so you can coordinate tax savings. For example, a loss on your small business taxes (through Schedule C) can be applied to your personal tax bill to lower your overall taxes. And lower business income means lower self-employment taxes, which you must pay personally along with income taxes.

After: When your tax return is filed, there may still be work for your tax advisor to do if you get audited. It makes sense to have your tax advisor/tax preparer be the person you turn to for help if you get a letter from the IRS saying you are being audited. This advisor should have the standing to be able to represent you before the IRS during an audit. IRS-regulated tax advisors (attorneys, CPAs, Enrolled Agents, and other registered tax preparers) can go with you to an IRS audit or represent you at the audit.

Who Can Be a Tax Advisor?
As noted above, the IRS lists several types of financial professionals who can serve as tax advisors and who can represent a taxpayer before the IRS. Someone who does not meet the IRS requirements is probably not a good person to use as a tax advisor.

1. A Tax attorney Look for an attorney who specializes in business taxes, not just personal taxes. A general attorney is probably not going to have the current knowledge of business taxes to be able to give you good advice.

2. A Certified Public Accountant (CPA). Find a CPA who is licensed to practice accounting in your state and who has expertise in business taxes. An "accountant" is not a CPA, by the way. Read more bout the difference between accountants and CPAs.

3. An Enrolled Agent, is a tax professional who has qualified to prepare taxes and represent taxpayers before the IRS. An enrolled agent cannot represent taxpayers before the Tax Court.

Can a Tax Advisor also Prepare Business Taxes? Anyone can prepare tax returns for others but you might want to find someone with experience. For example, your brother-in-law might be able to do your business taxes using a tax preparation software, but paid tax preparers must register with the IRS and receive a PTIN (paid taxpayer ID). Read more about how to find a good tax advisor/tax preparer.

More about Getting Help with Business Income Taxes.

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