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Tax accountancy is a profession that offers many different routes within its general scope. Tax accountants are found in a variety of environments. They work with individuals, small businesses, and major multi-national corporations. Their work with an individual can be as simple as using their skills to help a family find the most deductions when they are filing their 1040 income tax form or can involve complex tax issues when they help someone with a large investment portfolio, varied income sources, trust accounts, and multiple properties prepare tax returns. They could work in an office for a large company, with an accounting firm, or work to provide local clients with assistance with tax preparation as a consulting licensed professional within the industry.
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About the Tax Accounting Field
The field includes working with foreign tax law and even representing clients in court. Tax accountants that deal with international tax law represent individuals who have worked abroad as well as global corporations that operate on every continent. As Endorsed Agents, a high level certification for a tax preparer, tax professionals can help businesses or individuals protect their assets in court rather than working on the initial tax preparation.
Tax accountants who work with businesses help their clients or employers plan for their tax burden. Rather than existing as a mostly seasonal operation, helping people get through the tax season, they are often working hard all year, helping their employers file quarterly tax statements and the annual federal tax return, discovering deductions, and advising on ways to deduct from the overall taxes the corporation must pay. You'll need excellent communication skills to exceed in this career, but there are plenty of openings in the job market.
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What is Tax Accounting Explained?
Average Tax Accountant Salary
Tax accounting is a special area of accounting that employs a special set of principles different from other types of accounting work. That is, it falls outside of the generally accepted accounting principles (GAAP). Instead, tax accounting falls under the rubric of Other Comprehensive Basis of Accounting (OCBOA).
One key difference between GAAP and OCBOA is found how they report various transactions. Tax accountants can defer reporting a transaction until its debts are settled. The settlement might even take place before the transaction occurs, and often is recorded on a statement a year or more after it closes. Accountants working with the same client will record the same transactions, just not at the same time. Because of the differences, certification aimed toward this career choice may require additional education or training, even if you already have a degree in accounting.
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The Various Parts of Tax Accounting
- Business Tax Accounting: Corporate and Small Business
Depending on the size of the companies, small business accountants often operate as independent accountants with multiple business clients. They will be required to help their clients prepare income tax documents and also help them with payroll taxes.
Tax accountants that work with larger corporations usually do so as employees. In this capacity, these specialists help their employer find deductions, prepare property tax documents, and work with both federal and state returns, contacting the government agencies as necessary. They might also consult with management or the C-level executives on how to create opportunities for deductions or to otherwise reduce the overall corporate taxes by making efficient use of their tax code knowledge.
In a corporation, there may be many employees who need annual income tax statements. A licensed CPA might oversee a team of bookkeepers who tally all of the earnings and tax payouts for each employee. The lead accountant would then be responsible for final oversight, internal auditing of the process, and ensuring that each year-end income statement is accurate.
Smaller businesses might hire an independent tax preparer can handle a small number of employees and a relatively simple tax return. In some cases, an independent tax preparer might have a small staff that handles more burdensome tasks such as year-end income tax statements. On occasion, a small business might ask their tax preparer to evaluate their overall tax position and make suggestions as to how they might reduce their income taxes. For instance, they could suggest that the business take on debt or engage in certain government programs that provide deductions.
In such a consultancy role, a tax preparer might need to have full knowledge of GAAP so they can show how certain transactions impact the business in the near-term while OCBOA statements reflect the longer-term impact of a purchase or divestiture.
- International Tax Accounting
Individuals and businesses often have income tax returns that reflect foreign and domestic earnings. Not only do international tax accountants need to know how to account for the foreign earnings, and how they impact IRS filings, but they should also know how taxation works in the foreign nation. Many tax preparers who work with international taxes hold their certified public accountant (CPA) certification and this is not an entry-level position. The most successful international tax accounting practices often specialize in one or more related countries. That is, it is extremely difficult and time-consuming to maintain expertise on the taxation practices of multiple nations.
International tax accounting practices are consulted by individuals and businesses on how to establish tax entities in foreign nations, plan for the tax implications of cross-border sales or other transactions, and work with US-based subsidiaries of offshore corporations. These accountants might also help domestic entities shelter themselves from IRS taxation through various means, including routing e-commerce transactions through offshore computers. Accountants would then structure the offshore income so as to reduce the tax implications.
International tax accountants also work with individuals. For example, more and more US citizens are immigrating to foreign nations for long-term or temporary positions. Some contractors choose to live in countries where their dollar goes farther and where they can continue to work remotely. Their host countries might then see fit to tax their incomes, on top of their IRS filings. Given the potential complications, expatriates often need an accountant who can sort out their income tax filings in multiple nations.
- International Tax Reporting Standards
Given increasing globalization and the proliferation of offshore businesses, the accountancy profession has seen the rise of the International Accounting Standards Board. The IASB has created international standards, International Financial Reporting Standards (IFRS) that will help to clear up confusions that arise when dealing with multinational corporations, or itinerant expatriates who work in multiple countries. Even Panama, which has recently come under fire for providing legally dubious tax shelters, will adopt IFRS. The South American nation wishes to prevent outsiders from exploiting its financial institutions to cover for illegal business practices.
- Internal Revenue Service
Many tax specialists work for the IRS. Tax accountants who work for that agency, might be involved in auditing tax returns, offering advice to individuals or businesses, or even help settle appeals when taxpaying persons or entities contest a ruling in court.
On the other side of this appeals process are Enrolled Agents. EAs are licensed tax professionals who have passed a rigorous certification exam or who have worked with the IRS for at least five years. They are hires to represent clients in Tax Court. Like attorneys or other professionals, EAs can offer complete confidentiality to clients, in certain circumstances.
What Education Requirements are Needed for Tax Accountants?
Tax accountants all start with a bachelor's degree in accounting. During their undergraduate years, they might take special classes to help them concentrate on this area of specialty. They can also seek internships with other accountants in the field of accounting to help gain experience and real-world knowledge. Since approximately 35 percent of accounting graduates are hired to work in taxation, those who are already preparing for this niche will be ahead of the game.
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To ensure the best possible career, many accounting majors move on to graduate programs. There are many different routes to take in graduate school. Some will find a Master of Accounting program that offers a specialty in taxation. Then, there are programs that offer a Master of Tax Accounting, an MS in Taxation, and even MBA programs that focus on taxes. The trick is to figure out one′s desired career path.
Accountants with an accounting degree or a similar college degree with the appropriate courses in accounting can check with their state′s Accountancy Board to determine if they are eligible to sit for the CPA examination. A bachelor's degree is the minimum requirement and you must either major in accounting or take all required accounting classes. In general, students with 150 semester hours, including approximately 30 in upper-level accounting classes, can sit for the exam. For those who wish to specialize in taxation, the Regulation portion of the exam might be all they wish to focus on.
That is, the REG portion of the CPA exam focuses on federal taxation and business laws. For those who only pass this portion, their credentials will reflect a focused area of specialty and thus a highly valued position. While this one part of the four-part examination won′t merit a CPA license, it will likely help you land a position in tax accounting in a firm or with a corporation that needs a taxation specialist.
What Certifications Are Needed?
Tax accountants can hold numerous certifications and licenses. Each has rigorous standards for those who claim those credentials, and those accountants reap the benefits of their hard work.
- CPA License
Those who decide to move on to attain a full CPA license will enjoy even more opportunities, especially in the long-term. CPAs are able to sign legal documents and offer more services to their clients. Along with these abilities, they also have more responsibilities, mostly in terms of Continuing Professional Education.
To become an Enrolled Agent, accountants don′t necessarily need any special education, though it is helpful. Generally, future EAs should graduate with a bachelor's degree in accounting. Then, they should probably consider additional coursework specializing in taxation prior to taking the EA examination, which is quite strenuous. Alternately, EAs gain their credentials by working with the IRS for at least five consecutive years.
Yet another avenue that many tax accountants take is through the Accreditation Council for Accountancy and Taxation.
They offer examinations in four areas:
- Accredited Business Accountant
- Accredited Tax Advisor
- Accredited Retirement Advisor
- Accredited Tax Preparer
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Salary and Career Outlook
Tax accountants are always in demand. There are always individuals who have complicated tax returns that will need professional oversight, and businesses of all sizes constantly need help. With the rise of globalization, more and more U.S. workers are stationed overseas where they may have their dollars subject to foreign and domestic taxation, and there are still more workers entering the U.S. on short-stay visas who will need help with their IRS filings. It′s no surprise then that accountants are rather well-paid. In 2020, the median pay in the field was $55,640.