Great Business Ideas: Hire an Enrolled Agent to Do Your Taxes

Great Ideas for your Small Business: Hire an Enrolled Agent to Do Your Taxes

Nobody likes to pay taxes. it’s even worse if you’re unhappy with your current tax preparer. If you are thinking about a change, you might consider hiring an enrolled agent.

Although they’ve been around since 1884 and prepare millions of tax returns a year, enrolled agents, or EAs as they are known, are a well-kept secret. While certified public accountants (CPAs) and public accountants (PAs) are licensed by the state, enrolled agents are licensed by the federal government. Enrolled agents specialize in preparing tax returns and can represent taxpayers before the Internal Revenue Service, just like CPAs and tax attorneys.

They have to renew their license every three years after completing seventy-two hours of education in taxation. Despite their background and education, EAs tend to charge lower fees than CPAs or PAs. EAs are definitely outnumbered: There are only about 35,000 enrolled agents in the United States, compared with 500,000 certified public accountants and public accountants.

There are probably so few because it’s tough to become one. There are only two ways: pass a tough, two-day exam given once a year by the IRS (only about 30 percent of those who take it pass it) or work for the IRS for five years.

Through the years, EAs have had to battle CPAs who have pushed legislation aimed at limiting an EA’s ability to pre- pare balance sheets and financial statements for business clients. CPAs contend EAs should only do tax returns. EAs insist they can’t do a good tax return without an accurate financial statement.

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“CPAs treat us as a subspecies,” said Sid Norton, president of the California Society of Enrolled Agents, based in Sacramento, California. Norton said that in 1986 California CPAs launched a major political battle to keep enrolled agents from preparing financial reports for business owners.

The EAs fought back and prevailed, but similar battles have been waged in other states. “CPAs are very upset when we use the word ‘accounting,’” said Sharon Flynn, who has been an EA since 1969. “But the state Supreme Court said we can use the word.” Flynn said about 300 of her 650 clients are small business owners filing Schedule C tax forms. For example, one of her newest clients operates a driving school; another just opened a bakery.

David Costello, president of the National Association of State Boards of Accountancy in Nashville, Tennessee, said his group, which deals with state licensing matters, considers “EAs very beneficial” and “serve a useful purpose in the scheme of things.” “I wouldn’t have a problem taking my tax return to an enrolled agent if I didn’t do it myself,” said Costello, who is a CPA.

The National Association of Enrolled Agents is working with legislatures in South Carolina, Indiana, Florida, and Georgia to clarify the services EAs are permitted to perform, according to Janet Bray, executive vice president of the Gaithersburg, Maryland–based group.

If all this has inspired you to find an EA, try not to call them in March or April, when they’re working on tax returns. “Trying to interview a tax pro during the peak of tax preparation season can be like chatting with a doctor during brain surgery,” said Sid Norton.

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For information on EAs, send a self-addressed, stamped business envelope to NAEA, 200 Orchard Ridge Drive, Suite 302, Gaithersburg, MD 20878. The NAEA also operates a free referral service.

I recommend buying a couple of good books and surfing the Net for help with your taxes. Tax Savvy for Small Business: Year-Round Tax Strategies to Save You Money (Nolo Press; 2001) by Frederick Daily is filled with practical tips and suggestions.

Intuit, publisher of Quicken and TurboTax software, offers help via its Tax Center. The online service offers a variety of personal and business tax information.