Are you a would-be accounting or tax professional? Or, are you an individual filer trying to determine who to enlist for the preparation of your annual federal and state income taxes? In either case, it’s important to understand the difference between a Certified Public Accountant (CPA) and an Enrolled Agent (EA). While they have a number of things in common, there are some important differences between the two as well. On the one hand, many people may be completely unfamiliar with what an Enrolled Agent is, or what they do when it comes to preparing a tax return for an individual filer. And, similarly, you might be unsure of what exactly a tax CPA’s scope is: do you really need a CPA just to file your income taxes, or is there a better alternative?
If you’re a budding tax or accounting professional, you may also be unclear on the differences between these two options. Maybe you’re trying to decide which career to pursue. If so, it’s important to understand the functions that CPAs and EAs serve, and what the career potential for each role might be. With all of this in mind, we’ve put together this quick guide to answer all of your questions about the difference between a tax CPA and EA. Keep reading to learn more.
What exactly are CPAs and EAs?
Before we go into detail about the similarities and differences between a CPA and an EA, it’s worth explaining exactly what these terms refer to.
A Certified Public Accountant (or CPA) is someone who has met specific education requirements. These requirements vary by state, but generally involve completing up to 150 undergraduate course hours and passing a comprehensive exam. This four-part exam is administered by the Association of International Certified Professional Accountants, or AICPA. The four sections of the exam cover a wide range of topics related to accounting: reporting and regulation; financial accounting; business environment and concepts; and auditing and attestation. Tax law and the procedures associated with filing income taxes fall primarily under the “reporting and regulation” section of this exam.
An Enrolled Agent (or EA) is someone who focuses specifically on the preparation of taxes. There are two ways to become an enrolled agent: one can either work for the IRS for five years in a position that involves the interpretation of the tax code, or one can pass the Special Enrollment Exam for Enrolled Agents. The Special Enrollment Exam (or SEE) includes three separate test sections: individuals; businesses; and representation, practices, and procedures. In order to become an EA, an applicant has to achieve a passing score on each of these individual sections.
How are CPAs and EAs similar?
We’ll dive into some of the major differences between CPAs and EAs in the next section. First, though, we should ask an important question: are CPAs and EAs similar in some ways?
Without a doubt, CPAs and EAs have some things in common. For one thing, the awarding of both professional titles involves the completion of some form of training: whether it’s an undergraduate program for a CPA, the studying necessary to pass the SEE, or five years spent working in a tax code-related position for the IRS.
Additionally, both CPAs and EAs are generally well-versed when it comes to tax preparation. They both have an understanding of the tax code, filing procedures, and so on.
However, that’s where the similarities end. As we’ll see momentarily, there are a number of important differences between CPAs and EAs.
What are the differences between a CPA and EA?
Now that we know what CPAs and EAs actually are and how they’re similar, it’s time to delve into the big question: how is a CPA different from an EA, and vice versa?
First, consider the difference in career paths for each occupation. If you’re an Enrolled Agent, your sole focus is on the tax code. Your work to advise individuals and businesses on their taxes, and go through the steps of actually preparing and filing for those individuals and businesses. You might work at a tax preparation center, or at an accounting firm.
As a Certified Public Accountant, you have a much wider range of job opportunities. This is because CPAs deal with a significantly broader scope of issues. As someone who’s a kind of “jack of all trades” when it comes to the world of accounting, you might run your own accounting firm. Or, you could be employed in a government position. You could work at a large corporation as a financial advisor. You might even end up as a Chief Financial Officer (CFO) for a big company.
Generally speaking, CPAs have to obtain a significantly larger amount of education before they can become certified. In most states, they’re required to hold a bachelor’s degree or higher and obtain two years of public accounting experience. Only then can they sit for the CPA exam, which is incredibly rigorous. CPAs are also generally required to obtain a certain number of hours of continuing education each year, although the number of hours varies from state to state. By comparison, many states require a larger number of CEU hours for CPAs than the federal requirement of 15 hours per year for EAs.
In general, the average salary compensation for EAs tends to be lower than CPAs. The national average salary for EAs is just $44,000 per year, while the average for CPAs comes in at $63,000 per year.
Overall, the biggest difference between CPAs and EAs is their area of focus. EAs drill down into tax law and tax preparation, and aren’t concerned with accounting in general so much as they are with taxes in particular. CPAs on the other hand have to develop an in depth understanding of all areas of accounting, not just tax preparation.
The question of whether you should go with a CPA or an EA as an individual filer or business ultimately comes down to your individual needs.
One of the advantages of working with an EA is the fact that they’re licensed to practice in every state of the U.S. So, if you need to file in multiple states and require tax advice related to each of those states, an EA can be a better choice than a CPA (who may only be licensed in one state). If you’re involved in an audit or other tax-related dispute with the IRS, hiring an EA can also be a more affordable (but still effective) alternative to working with a tax attorney.
Generally speaking, though, a CPA is a better choice when you require financial advice outside the scope of your taxes. If you’re running a business and have accounting questions, or if you have concerns related to your personal finances, an accountant can be an invaluable resource. Working with the same person to handle these issues and file your taxes can be advantageous. Additionally, if you need to audit your business income, expenses, and deductions, you’ll need to work with a CPA. Only CPAs are able to “attest” to an audit. This involves the CPA confirming the truth of your financial statements to the IRS.
Where can a CPA or EA learn more about the new changes to the tax law?
As mentioned above, both CPAs and EAs are required to complete a certain number of CEU hours each year: 15 CEUs for EAs, and a different number for CPAs depending upon the state in which they’re licensed.
With the recent sweeping changes to the U.S. tax code, it’s important to stay up to date. Basics & Beyond™ offers affordable, engaging webinars for CPAs, EAs, and other accounting and tax professionals. For Basics and Beyond’s 2018 webinar schedule, click here.