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What Is a Tax Consultant, and What Do They Do?

A tax consultant can help you minimize your tax liability, capitalize on tax deductions and manage your tax situation. With more expertise than standard tax preparers, tax consultants can help with tax planning, inheritance issues, charitable giving and other complex tax needs. Often, these advisors have training in tax law or accounting. Fees vary, depending on the scope of work and the skill and experience of the tax consultant. If you need further help with your taxes, investments or long-term financial plan, a financial advisor would be helpful.

What Does a Tax Consultant Do?

Tax consultants are professionals who specialize in tax law and financial-related counseling. They advise clients on income tax returns and a range of financial matters, including trust, estate and retirement taxes. They also must stay informed on the most recent tax requirements and law changes, both on the federal and state levels.

Tax consultants offer a variety of services to their clients. These can include:

  • Preparing your tax return
  • Looking for deductions to lower your tax burden
  • Minimizing your tax liability in retirement
  • Dealing with taxes on rental property income
  • Helping manage your capital gains taxes
  • Sorting through the tax implications of life events, like marriages, divorces, deaths and births

Not unlike individuals, businesses and their owners also need help with taxes. In fact, corporate tax law is often more intricate than the rules surrounding individual income. As a result, many tax consultants specialize in business tax services. This can involve minimizing a company’s tax liability, ensuring the company is taking advantage of all tax benefits and more.

Tax consultants usually work for financial consulting firms, public accounting firms or government agencies. On the other hand, some may operate completely independently. In many cases, tax consultant services are available online, though you can also access their services through an office. Clients range from individuals and families to organizations and corporations.

How Much Does a Tax Consultant Cost?

Tax consultant fees vary widely, as they’re based on several key factors. Location plays a major role, with prices peaking where the cost of living is highest. Another factor is the complexity and scope of your tax situation. In short, the more the tax consultant has to deal with, the more you’ll pay. Also, if your situation requires highly specialized knowledge about tax code, their fees will be commensurate with their qualifications.

Let’s say you only need a simple tax return prepared for you and your family. Based on 2019 data from the National Society of Accountants, the average tax return costs around $300 to prepare. If you expect to receive a sizable payment back from the federal or state government, then this is a small price to pay to ensure things are handled right.

If you decide to work with an online tax consultant, you’ll probably incur a fixed fee of anywhere from $25 to $1,200, according to Business.com. Depending on the specifics of your situation, this may or may not be a worthwhile price.

Business owners may opt to take advantage of a customized plan from a tax consultant. Again, according to Business.com, fees for this could range as high as $2,000 a year. Of course, if you want to spend your time focusing on your company and not on taxes, this definitely could be worth it.

Tax Consultants vs. Tax Preparers

What Is a Tax Consultant, and What Do They Do?

Before you begin looking for a tax consultant, it’s important to make sure they’re exactly what you need. For instance, if you simply need help filing your taxes, a tax preparer might make more sense. Beyond that, a tax consultant is likely the way to go.

A tax preparer is the simplest version of a tax professional. Rather than learn about extensive, specialized tax codes, they focus solely on preparing income tax forms for those who need to file. This could include your Form 1040, Form 1099 and others. While tax preparers often work with individuals, some may help business owners file for their companies.

Tax consultants work with a similarly wide variety of clients. But where they differ is in the complexity of the services they provide. For example, a tax consultant can help you manage your tax issues during a divorce, a probate case and other situations. On the other hand, a tax preparer sticks to only basic income tax returns.

The most qualified tax consultants hold licensure as a certified public accountant (CPA) or an enrolled agent (EA). These consultants possess both the formal education and the experience required to provide comprehensive strategic advice. However, there are some tax consultants who are merely registered with the IRS. That means their tax advising comes without a formal education to complement their knowledge.

How to Find a Tax Consultant

Tax consultants possess a range of different specialties and qualifications, so it’s important to do your homework when choosing one. If you can’t find the right one at a firm near you, you may want to consider online consulting. This option is a more convenient form of tax advising that allows you to work solely through the web.

Perhaps the best way to come across tax consultant recommendations is to speak with friends and family who have used one. By speaking with someone you trust, you can feel confident that the guidance you’re receiving is reliable. Outside of this method, there are a number of online resources that can help you find a tax consultant.

When you start to meet with potential consultants, look for key characteristics. More specifically, make sure you can easily contact them and trust them enough to hand over all of your personal records. Qualifications and the subsequent proof of them is always a plus, and you should try to seek out any past history or clients they may have available.

In addition, a key trait of a good tax consultant is excellent written and verbal communication skills. They should be able to incorporate current tax law findings and your research into a strategy that’s easy to comprehend. This is crucial when it comes to ensuring that you fully understand the tax strategy that’s being implemented in your situation.

Requirements for Becoming a Tax Consultant

What Is a Tax Consultant, and What Do They Do?

Tax consultants do not have a formal certification process. However, they often have a bachelor’s degree in accounting, finance, tax law or another related field. Additionally, paid consultants or advisors who prepare tax returns must become registered tax return preparers under IRS law. The IRS also requires these tax return preparers to register for a Preparer Tax Identification Number (PTIN).

In addition, preparers also have to take the Registered Tax Return Preparer competency test. However, some tax return preparers don’t have to take this exam. Professionals who don’t have to take the exam include CPAs, EAs, attorneys, supervised preparers and preparers who don’t prepare or assist in the preparation of any Form 1040 series returns.

The IRS provides the PTIN number option on an active or provisional basis. Specifically, tax return preparers who must pass the competency test receive provisional status, while CPAs, EAs and attorneys automatically receive active status. Additionally, paid tax return preparers must pass both a tax compliance check and a sustainability check. All preparers who meet these requirements become registered preparers under IRS law.

Bottom Line

Tax consultants typically have extensive knowledge about tax codes, which allow them to help you lower your taxes. Generally, this kind of advisor works for you year-round, as opposed to a tax preparer, whose job is seasonal. Although you don’t have to hire a consultant, it’s important to ask yourself whether you could benefit from having one.

Tips for Reducing Your Tax Liability

  • Consider using a financial advisor to help you minimize your tax liability for retirement. Luckily, finding a local financial advisor doesn’t have to be hard. In fact, SmartAsset’s free tool can match you with up to three financial advisors in your area, with the final choice of who to work with being up to you. Get started now.
  • Keep in mind that there are certain actions you can take yourself to reduce your tax liability. When tax time comes, you’ll want to consider making tax deductions to minimize your taxable income. You should also ask yourself whether you could benefit from a tax shelter or a tax extension.

Photo credit: ©iStock.com/Bill Oxford, ©iStock.com/Squaredpixels, ©iStock.com/utah778

Rickie Houston CEPF® Rickie Houston writes on a variety of personal finance topics for SmartAsset. His expertise includes retirement and banking. Rickie is a Certified Educator in Personal Finance (CEPF®). He graduated from Boston University where he received a bachelor’s degree in journalism. He’s contributed to work published in the Boston Globe and has worked alongside award-winning faculty for the New England Center of Investigative Reporting at Boston University. Rickie also enjoys playing the guitar, traveling abroad and discovering new music. He is originally from Wilmington, North Carolina.
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