CPA vs. Tax Preparer: Which Do You Need for Business Taxes?

Key Takeaways

• CPAs have 150 credit hours of education, pass a 4-part exam, and can represent you before the IRS at all levels. Unlicensed preparers only need a PTIN.
• For S-Corps and partnerships, CPA expertise typically pays for itself through proper reasonable compensation analysis, basis tracking, and planning opportunities.
• Enrolled Agents (EAs) have the same IRS representation rights as CPAs and can be excellent for tax-focused work without financial statement needs.
• Simple sole proprietorships with single-state operations may not need CPA-level expertise. A qualified EA or preparer can handle basic compliance.
• The preparation fee isn’t your cost. Your tax bill is. A $500 savings on prep that misses $5,000 in deductions cost you $4,500.

“Do I really need a CPA, or is that just overpaying for something simpler?”

It’s a fair question. CPAs charge more than unlicensed tax preparers. The question is whether the additional cost provides additional value for your specific situation.

The honest answer: it depends.

A CPA isn’t always necessary. For a straightforward sole proprietorship with simple income and expenses, a qualified tax preparer may handle your needs just fine. But for S-Corps, partnerships, multi-state operations, or any situation where planning matters, a CPA’s training and experience typically pays for itself.

This guide explains the actual differences between CPAs, Enrolled Agents, and unlicensed preparers, when each makes sense, and how to decide what’s right for your business.

Understanding the Different Types of Tax Professionals

Not everyone who prepares tax returns has the same credentials, training, or capabilities. Here’s what distinguishes each type.

Certified Public Accountants (CPAs)

CPAs are licensed by state boards and represent the highest level of credentialing in accounting.

Licensing requirements:

• Bachelor’s degree with specific accounting coursework (150 credit hours total)
• Pass all four sections of the Uniform CPA Examination
• Experience requirement (varies by state, typically 1-2 years under CPA supervision)
• Ongoing continuing education (40 hours/year in most states)
• Licensed and regulated by state boards of accountancy

What CPAs can do:

• Prepare all types of tax returns (individual, business, trust, estate)
• Represent you before the IRS at all levels (audits, appeals, collections)
• Provide attestation services (audits, reviews, compilations)
• Sign audited financial statements
• Advise on complex tax planning
• Provide year-round advisory services

CPAs who specialize in business taxation understand the nuances of pass-through entities, basis tracking, and strategic planning that generalists may miss.

Enrolled Agents (EAs)

Enrolled Agents are licensed by the IRS specifically to practice before them.

Licensing requirements:

• Pass the three-part Special Enrollment Examination, OR
• Former IRS employee with relevant experience
• No degree requirement
• 72 hours of continuing education every 3 years
• Licensed by the IRS (federal license, valid in all states)

What EAs can do:

• Prepare all types of tax returns
• Represent you before the IRS at all levels (same as CPAs)
• Cannot provide attestation services
• Cannot sign audited financial statements

EAs often have deep tax expertise but lack the broader accounting training CPAs receive. For tax-focused work without financial statement needs, an experienced EA can be an excellent choice.

Tax Preparers (Unlicensed)

Anyone with a PTIN can prepare tax returns for compensation, regardless of education or experience.

Licensing requirements:

• PTIN (Preparer Tax Identification Number) required
• No education, exam, or experience requirement
• Some states require registration or basic competency exams (California, Oregon, etc.)
• Most states have no continuing education requirements

What unlicensed preparers can do:

• Prepare tax returns
• Limited IRS representation (only before revenue agents on returns they prepared)
• Cannot represent in appeals, collections, or on returns they didn’t prepare
• Cannot provide attestation services

The quality of unlicensed preparers varies enormously. Some are highly experienced and competent. Others lack the training to handle anything beyond simple returns.

Quick Comparison Table

When You Need a CPA for Your Business

Certain situations warrant CPA-level expertise because the complexity, stakes, or planning opportunities justify the additional cost.

You Have an S-Corporation

S-Corps have specific requirements that create real exposure if handled incorrectly:

• Reasonable compensation analysis and documentation is required for every owner-employee
• Shareholder basis tracking affects how distributions are taxed
• Officer W-2 and health insurance treatment has specific rules for 2%+ shareholders
• QBI deduction calculations have limitations that interact with S-Corp income

These aren’t areas where “close enough” works. Getting reasonable compensation wrong can result in reclassification of distributions as wages, back payroll taxes, and penalties that far exceed any preparation cost savings.

For comprehensive S-Corp guidance, see our S-Corporation Tax Guide.

You Have a Partnership (Form 1065)

Partnership taxation is arguably the most complex area of business tax:

• Capital account maintenance must be tracked for each partner
• Basis tracking for each partner affects distributions and eventual sale
• Special allocations must satisfy substantial economic effect rules
• Section 754 elections require inside basis adjustments when ownership changes
• Multi-state allocation and apportionment varies by state

Partnership audits are now handled under the Bipartisan Budget Act (BBA) rules, which shifted audit liability to the partnership itself rather than individual partners. Understanding these rules matters.

For detailed partnership guidance, see our Complete Guide to Partnership Taxation.

You Operate in Multiple States

Multi-state compliance requires more than just filing additional returns:

• Nexus analysis to determine which states require filing
• Threshold monitoring as rules change and your business grows
• State-specific filing requirements that differ from federal treatment
• Apportionment factor calculations to properly allocate income
• Composite return decisions for nonresident partners or shareholders

Each state has different rules. Getting nexus wrong means back taxes, penalties, and interest when states eventually notice you should have been filing.

For partnerships with multi-state operations, see our guide on multi-state partnership filing.

You Have International Components

Any international element adds substantial complexity and penalty exposure:

• Foreign-owned U.S. entities must file Form 5472 with severe penalties for failure
• U.S. owners of foreign entities may need Form 5471 or Form 8865
• FBAR requirements for foreign bank accounts exceeding $10,000
• Treaty benefits that can reduce or eliminate withholding

Penalties for international form failures can exceed $10,000 per form. This isn’t DIY territory, and it isn’t territory for preparers without international experience.

You Want Planning, Not Just Filing

If you want proactive strategies rather than just historical reporting:

• Entity structure optimization to minimize overall tax burden
• Retirement plan design and contribution maximization
• Exit planning and basis management for eventual sale
• Year-round advisory relationship with ongoing guidance

Tax planning requires deeper training than return preparation. CPAs are specifically trained for advisory work that goes beyond compliance.

You Might Face an Audit

If audit risk is a concern, representation matters:

• CPAs can represent you at all levels of IRS proceedings
• EAs have the same representation rights as CPAs before the IRS
• Unlicensed preparers can only appear before revenue agents on returns they prepared

More importantly, quality preparers build audit-ready files from the start. Documentation created during preparation prevents problems if questions arise later.

When a Tax Preparer or EA May Be Sufficient

Not every situation requires CPA-level expertise. Here’s when you might save money without sacrificing quality.

Simple Sole Proprietorship (Schedule C)

If your business is:

• Single owner with no employees
• Single state operations
• Service-based with straightforward income
• No significant assets requiring depreciation tracking
• No complex deductions or aggressive positions

A qualified EA or experienced preparer may handle this effectively at a lower cost.

You Just Need Accurate Filing

If you:

• Don’t have complex planning needs or entity structure questions
• Aren’t likely to be audited based on your return profile
• Have straightforward, well-documented income from predictable sources
• Don’t need year-round advisory access

Basic compliance can be handled without CPA-level expertise.

Cost Is the Primary Concern

CPAs typically charge more. If your situation is genuinely simple and cost is the deciding factor, a qualified preparer may serve you adequately.

The key word is “genuinely simple.” Many business owners underestimate their complexity until problems arise.

The Real Difference Is What Gets Found (or Missed)

Credentials matter, but outcomes matter more. Here’s what separates quality preparation from mere compliance.

What a CPA Brings to Complex Situations

Deeper training: CPAs study tax, accounting, auditing, and business law. They understand how these systems interact and where opportunities or risks exist.

Pattern recognition: CPAs who specialize in business returns see the same issues repeatedly. They know where to look for problems and opportunities that generalists miss.

Defensive documentation: CPAs are trained to document positions and build audit-ready files. This documentation has no value until you need it. Then it’s invaluable.

Proactive suggestions: CPAs often identify opportunities the client didn’t know to ask about. A good CPA tells you what you should consider, not just what you asked.

What Often Gets Missed by Non-Specialists

• QBI deduction optimization (spouse income matters, W-2 wages affect limits)
• Partner basis tracking (affects gain/loss on distributions and eventual sale)
• Reasonable compensation (IRS has specific factors they look for)
• Multi-state nexus (thresholds and rules change frequently)
• Entity election timing (missed deadlines often can’t be fixed)

The preparation fee isn’t your cost. Your tax bill is.

A preparer who charges $500 less but misses $5,000 in deductions cost you $4,500. The cheapest option is often the most expensive mistake.

Questions to Ask When Evaluating Any Preparer

Regardless of credential type, ask these questions before engaging:

Ask any preparer:

1. What are your credentials? (PTIN is minimum; CPA/EA preferred for business)
2. What experience do you have with my entity type? (S-Corps and partnerships need specialists)
3. Will you represent me in an audit? (Understand their limitations)
4. How do you handle questions during the year? (Year-round access has value)
5. Do you provide planning recommendations? (Compliance-only misses opportunities)

For detailed guidance on evaluating preparers, see how to choose a business tax preparer.

Red flags (any preparer type):

• Won’t provide credentials or PTIN
• Charges based on refund size
• Won’t sign the return they prepared
• Can’t explain their work in terms you understand
• Guarantees specific outcomes before seeing your documents

The Cost Difference

Understanding typical pricing helps you evaluate whether the cost difference is worth it for your situation.

Typical ranges by preparer type:

The real question: Is the $500-$1,000 difference worth it?

If the CPA finds $5,000 in missed deductions or prevents a compliance problem, absolutely yes. If your situation is genuinely simple and nothing would be missed regardless, maybe not.

For detailed pricing information, see our guide on how much a CPA costs.

Bottom Line Recommendations

Use a CPA if:

• You have an S-Corporation or partnership
• You operate in multiple states
• You have any international components
• You want proactive tax planning, not just filing
• Your business is growing and decisions made now affect future years
• You might face an audit and need defensible documentation

An EA or qualified preparer may work if:

• Simple sole proprietorship with straightforward income
• Single state, straightforward situation
• No complex assets or transactions
• You just need basic compliance, no planning
• Cost is your primary concern and situation is genuinely simple

Regardless of who you choose:

• Verify credentials before engaging
• Ask about their experience with your specific entity type
• Understand what’s included in their fee
• Review your return before signing regardless of who prepared it

Making the Right Choice

The CPA vs. tax preparer question isn’t about prestige or paying more for a credential. It’s about matching expertise to complexity.

For S-Corps, partnerships, multi-state operations, or any situation where planning matters, a CPA’s training and experience typically pays for itself through optimizations found and mistakes avoided. The additional cost generates returns that exceed the investment.

For simple, single-state sole proprietorships with straightforward income, a qualified EA or experienced preparer may handle basic compliance effectively at a lower cost.

The key is being honest about your situation’s complexity. Business owners often underestimate their complexity until problems surface. If you’re unsure, a consultation with a CPA can help you understand what level of service your situation actually requires.

If you’re not sure which you need, tell us about your situation and we’ll give you an honest answer about whether CPA-level expertise makes sense for your business.

Frequently Asked Questions

What’s the difference between a CPA and a tax preparer?

CPAs have completed extensive education (150 credit hours), passed a rigorous four-part exam, and maintain ongoing continuing education. They can represent you before the IRS at all levels and provide attestation services. Unlicensed tax preparers only need a PTIN with no education, exam, or experience requirements, and have limited representation rights.

Do I need a CPA for an LLC?

It depends on how the LLC is taxed. Single-member LLCs with simple operations may not need CPA-level expertise. Multi-member LLCs (taxed as partnerships) or LLCs electing S-Corp treatment typically benefit from CPA expertise due to basis tracking, allocation, and compliance requirements.

Can a tax preparer represent me in an IRS audit?

Unlicensed tax preparers can only represent you before revenue agents on returns they personally prepared. They cannot represent you in appeals, collections, or on returns they didn’t prepare. CPAs and Enrolled Agents have unlimited representation rights before the IRS.

Is an Enrolled Agent as good as a CPA for business taxes?

For tax-focused work, an experienced EA can be excellent. EAs have deep tax expertise and the same IRS representation rights as CPAs. However, CPAs have broader training in accounting and business that may be valuable for complex situations. The best choice depends on your specific needs.

Why do CPAs charge more than tax preparers?

CPAs have more extensive training (150 credit hours, 4-part exam, continuing education), liability insurance requirements, and regulatory oversight. They typically provide more thorough analysis, planning recommendations, and year-round advisory services beyond basic compliance.