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What Is Tax Consulting and What Do Tax Consultants Do?

It’s no secret that the tax system in the United States is pretty complicated. Each year, millions of Americans will end up owing more money to the IRS than they calculated when filing their taxes. Several prominent politicians have run their campaigns emphasizing simplifying the tax codes and pushing for a “flat tax rate” to replace our current system. 

While it might not like it sometimes, the current tax system is designed to help Americans. A universal tax rate might be considered fairer, but it wouldn’t consider the specific needs and circumstances of individuals, families, or businesses. For example, a married individual with three children would have a much more difficult time covering the same tax obligation as a single individual with no children. 

If you have tax issues, it might be good to hire a qualified tax consultant for advice. 

What Does Tax Consulting Mean?

Tax consulting is the name for financial advice that aims to help you make better-informed decisions about any issues involving your taxes. 

There are a lot of rules and regulations that the average American taxpayer often misunderstands. They might not be aware of all the various deductions and credits that they are eligible for that might reduce their overall tax obligation. 

Tax consulting is one way for a taxpayer to learn about the specific options available to them. The taxpayer will then be able to legally and correctly file their taxes while also saving money in the process.

What Do Tax Consultants Do?

A high-quality tax consultant will use their knowledge and experience to provide several important services for their client. The main emphasis is to ensure that their client has followed all rules, regulations, and guidelines established by the IRS and United States tax codes. However, they will also look for ways to help reduce their clients’ overall tax obligations while operating within these rules. 

These are a few of the services provided by a tax consultant:

Preparing Tax Returns

Every American will need to file an annual income tax return unless they meet very specific criteria. The same is true for any business or organization that is certified and currently operational. 

Tax returns can vary from fairly simple to incredibly complex, but a tax consultant should have no problem helping their client file their returns according to the rules. A tax consultant will also help to figure out and plan potential financial strategies for tax filings. 

They might suggest using tax credits or deductions to reduce the overall tax burden for an individual or business and save money for their clients. 

Create Strategies For Future Tax Obligations

Life can often be random and unpredictable, but a tax consultant can help create an overall plan for future tax obligations. 

There are lots of unexpected tax obligations that will occur during major life events. If these taxes are not planned for, they could end up getting an individual into trouble with the IRS or owing a significant amount of money. 

A tax consultant can help you to prepare for the tax ramifications that will come from life events such as:

  • Marriages and divorces
  • Births and deaths
  • Owning rental properties
  • Retirement accounts
  • Capital gains
  • Creating a trust or estate
  • Starting or selling a business

Help Resolve Tax Issues

It’s pretty common for Americans to owe the IRS money. These “back taxes” can quickly lead to various penalties, fees, and interest being applied to the amount. It won’t take long for these financial levies to compound and the amount to go from something manageable to overwhelming. 

A tax consultant can help you to negotiate with the IRS and offer up potential solutions that might help you resolve your balance faster. If you find yourself behind with the IRS, these are some of the programs and solutions that a tax consultant might suggest:

  • Installment agreements: These agreements are the most commonly used by taxpayers that owe money. Instead of being required to pay off the entire balance at one time, the IRS will accept an agreement to break up the balance throughout a set time limit. The longest term limit to these agreements is 72 months, and each payment will be for the same amount until the balance is zero.
  • Penalty abatement: There are several financial penalties that will be applied to your balance whenever you owe any money. A tax consultant can help you request a penalty abatement from the IRS. They will argue on your behalf that you had legitimate reasoning for not making the payment, and the penalties should be removed.
     
  • Currently-not-collectible status: If paying your tax obligation would put you in economic hardship, you might be eligible for a currently not collectible status. A tax consultant might be able to prove to the IRS that your financial situation is dire and you need time to get back on your feet. If this status is granted, the IRS will temporarily pause all collection attempts until a later date when your case will be reviewed. Any amount does not reduce the amount due, but the IRS will not seek to collect it until they can prove that you can afford to start paying again.
  • Offer in compromise: Similar to tax settlements offers in compromise are a negotiation tactic that can help reduce your overall balance. The IRS typically accepts these offers unless the amount is acceptable or they have serious doubts that the amount will be repaid. A tax consultant can help you create a proposal that is more likely to be accepted by the IRS and can help to reduce your total balance. 

What Are The Qualifications Required To Be A Tax Consultant?

“Tax consultant” is a fairly broad term covering financial advisors, accountants, and tax lawyers.

There is no test required to become a tax consultant in the same sense that a lawyer must pass the bar exam. However, there are several programs and accreditations that a tax consultant can have that would suggest a higher level of knowledge and competency. 

Most tax consultants will hold a bachelor’s degree in accounting, financing, or some similar field. After receiving their undergraduate degree, these are a few of the options available to an aspiring tax consultant:

Certified Public Accountant

Becoming a Certified Public Accountant (CPA) is often the next step for a tax consultant. Educational, experiential, and test requirements must be met to receive this certification. 

The specific details can vary from state to state, but most CPA’s will be required to meet the following criteria to become accredited:

  • At least 150 credit hours of higher education
  • A minimum period of work experience in finances 
  • A passing score on the CPA exam

After these criteria are met and the certification is earned, the consultant must continue to take educational courses annually to keep their license up to date. 

Accredited Tax Consultant

Most tax consultants will receive this accreditation as it’s most relevant to their specific career choice. Becoming a CPA first isn’t required, but it can make it much easier to receive this certification.

An Accredited Tax Consultant is someone that has demonstrated advanced knowledge and understanding in complicated tax subjects, including financial planning. To receive an ATC certification, a candidate must meet the following criteria:

  • At least five years of experience in a tax-related field
  • A passing score on a 100 question exam

Once certified, an ATC will need to continue their education as a CPA would. However, the total number of credit hours is often lower than those required to maintain a CPA accreditation. 

Enrolled Agent

The IRS requires a license for a tax consultant for them to represent their client in certain matters. Unless they have been certified as an Enrolled Agent, a tax consultant wouldn’t be able to argue on behalf of their client during audits, appeals, or collections. 

There are two different ways that a tax consultant might receive their license:

  • A passing grade on a qualification exam or;
  • Working as an IRS agent for at least five years in a field using tax codes

All candidates will be required to pass a background check that will verify references and renew any relevant financial information about the individual. 

The Takeaway

Tax consultants can help to provide a wide variety of services to their clients. They will typically have a deep knowledge of the United States tax code as well as the various rules, regulations, and obligations that pertain to your finances. 

There are several different possible accreditation and certification that a tax consultant can receive. Each of these licenses will serve as proof that they are highly qualified in their field and are knowledgeable and competent to work as a tax consultant. 

Finding a tax consultant that can meet your needs can be a difficult process unless you are looking in the right place. At Coast One Tax Group, you’ll be able to meet and talk with several highly qualified tax consultants. 

These experts can help you with whatever tax-related issues you might be experiencing and help you get on the road to a fresh start. 

Sources:

Why Are Taxes So Complicated? | Tax Policy Center

Do Financial Advisors Prepare Tax Returns for Clients? | Investopedia

Back Taxes | Investopedia

Installment Agreements | Taxpayer Advocate Service.

Penalty Relief Due to First Time Penalty Abatement or Other Administrative Waiver | Internal Revenue Service

Currently Not Collectible | Taxpayer Advocate Service

Topic No. 204 Offers in Compromise | Internal Revenue Service

Tax Advisor Definition | Investopedia

Tax Consultant Job Description | Accounting Education