Difference Between CPAs, LTPs and Bookkeepers
There's often confusion around the differences between a bookkeeper, a CPA and a LTP. Below is a great guide for you to get a better grasp on the difference between the financial professionals to help set you up for financial success.
Certified Public Accountant:
A Certified Public Accountant, or CPA, is a licensed professional who passed a brutal exam to be certified. Once they pass the exam, they either go into tax preparation\private practice or forensic accounting.
Forensic accounting is REALLY COOL! At least for my nerdy self. It's the people who go in and find missing or shady accounting transactions. And believe me, it will always be found. Numbers do not lie. They are the PI of the accounting world.
However, most CPA’s go into their own practice or become part of an established practice and do accounting on a larger level but the majority of their energy is devoted to tax preparation.
Long story short, CPA’s go through a lot of schooling and an intense exam to be a CPA. They always say it takes about 400 hours of studying to pass the exam and even then, 50% of people fail it.
So, they know how to handle every day accounting, situations out of the norm and prepare taxes. Depending on their field of interest, they might even be able to assist on 401(k)/IRA option and general stock advise.
I will say, it can be very important to find a CPA that has other clients and a known track record in your field. Some industries, it does not really matter what your accountant specializes in. Others, like cannabis, it is extremely important to vet your tax preparer and insure they know how to handle the 280e tax code. Overall, it makes it easier to communicate and understand each other if they already know you industry.
What makes you eligible for taking the CPA exam?
In a general sense, it is actually quite simple. One must be of good moral character because when handling money and finances, it is vital that you do it ethically. The actions a CPA makes has huge implications on peoples lives. The IRS is not known for being lenient so it is important to do it correct the first time.
A person must have graduated with some concentration in accounting from an accredited college or university with a bachelors or master’s degree.
Now, the last two make sense, but also seems like a strange requirement, to me. In order to take the exam, one must be 18 years or older (which, after a college degree, 99.9% of the population will already be over 18) and have a social security number (so the IRS can track you, too).
Which basically means, besides some grueling studying hours, on top of a degree, anyone can take the exam. Though it takes a LOT to pass.
Licensed Tax Preparer:
Licensed Tax Preparers (LTP’s) can also prepare taxes and can be classified as accountants, just not Certified Public Accountants.
The LTP exam strictly focuses on taxes and is administered by the IRS whereas CPA exam covers every aspect of accounting and administered by the National Association of State Boards of Accountancy.
Which ultimately means that the LTP exam is easier because it focuses only on taxes. However, it is still not a simple test and takes a lot of studying and understanding tax laws.
If your returns and tax needs are simple and straight forward, an LTP might be a great option for you! However, be cautious of ones who base pricing off your refund. That can lead to some unethical practices.
If you are ever in doubt, just ask them for their credentials. I do not know a single human who does not like to boast about all the schooling they have achieved or certificates they have received. This will also allow you to see if what they are providing aligns with what you are expecting.
Bookkeeper:
A bookkeeper is responsible for the day to day financial transactions of the business. Every company requires something different from their bookkeeper but as a general overview they track and record every dollar coming in and out. They prepare your financials to hand over to your tax preparer at the end of year.
See my post on Reasons Why Your Bookkeeper is Your Best Asset for a full list of why you need a bookkeeper and what they do. They are extremely important in order to keep you out of trouble with the IRS AND keep your finances in order.
This is another time when it can be important that your bookkeeper has worked within or specializes in your industry. While, like an accountant, it is not vital, but it can lead to miscommunication and misunderstanding.
Bookkeeping, is bookkeeping, is bookkeeping, do not get me wrong. However, each industry has unique aspects. If you have a bookkeeper who knows your industry, they can look at your books an immediately be able to assess them.
In conclusion, always make sure to ask the tough questions and do your research on anyone who you are bringing into your financials. It is very important that everyone is on the same page and you go into it as a working partnership.